Another Banking crisis looming on the Horizon

Startup-focused lender SVB Financial Group (SIVB.O) became the largest bank to fail since the 2008 financial crisis on Friday, in a sudden collapse that roiled global markets, left billions of dollars belonging to companies and investors stranded.

U.S. lawmakers met with the Federal Reserve and Federal Deposit Insurance Corporation on Friday to discuss the collapse of SVB Financial Group, Coindesk reported on Saturday citing a source.

British clearing bank The Bank of London is considering a rescue bid for the UK arm of collapsed U.S. bank Silicon Valley Bank, Sky News reported on Saturday.

The news of the British bank’s bid interest comes a day after the Bank of England said it was seeking a court order to place SVB UK into an insolvency procedure, after U.S. regulators took over its parent company SVB Financial Group earlier on Friday.

The rout in SVB’s stock, which began on Thursday, has spilled over into other U.S. and European banks.

U.S. banks have lost over $100 billion in stock market value and European banks have shed another $50 billion in value over the past two days, according to a Reuters calculation.

U.S. Treasury Secretary Janet Yellen on Friday met with banking regulators on the collapse of SVB, as she and the White House expressed confidence in their abilities to respond to the bank failure.

California banking regulators closed the bank, which did business as Silicon Valley Bank, on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for later disposition of its assets.

Based in Santa Clara, the lender was ranked as the 16th biggest in the U.S. at the end of last year, with about $209 billion in assets.

Specifics of the tech-focused bank’s abrupt collapse were a jumble, but the Fed’s aggressive interest rate hikes in the last year, which had crimped financial conditions in the start-up space in which it was a notable player, seemed front and center.

As it tried to raise capital to offset fleeing deposits, the bank lost $1.8 billion on Treasury bonds whose values were torpedoed by the Fed rate hikes.

Silicon Valley Bank’s failure is the largest since Washington Mutual went bust in 2008, a hallmark event that triggered a financial crisis that hobbled the economy for years. The 2008 crash prompted tougher rules in the United States and beyond.

Since then, regulators have imposed more stringent capital requirements for U.S. banks aimed at ensuring individual bank collapses won’t harm the wider financial system and economy.

The main office and all branches of Silicon Valley Bank will reopen on March 13 and all insured depositors will have full access to their insured deposits no later than Monday morning, the FDIC said.

But 89% of the bank’s $175 billion in deposits were uninsured as the end of 2022, according to the FDIC, and their fate remains to be determined.

The FDIC is racing to find another bank over the weekend that is willing to merge with Silicon Valley Bank, according to people familiar with the matter who requested anonymity because the details are confidential.

While the FDIC hopes to put together such a merger by Monday to safeguard unsecured deposits, no deal is certain, the sources added.

Companies such as video game maker Roblox Corp RBLX.N and streaming device maker Roku Inc (ROKU.O) said they had hundreds of millions of dollars in deposits at the bank.

Roku said its deposits with SVB were largely uninsured, sending its shares down 10% in extended trading. Technology workers whose paychecks relied on the bank were also worried about getting their wages on Friday.

An SVB branch in San Francisco showed a note taped to the door telling clients to call a toll-free telephone number.

The problems at SVB underscore how a campaign by the U.S. Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market. The worries walloped the banking sector.

U.S. lenders First Republic Bank (FRC.N) and Western Alliance (WAL.N) said on Friday their liquidity and deposits remained strong, aiming to calm investors as their shares fell.

Others such as Germany’s Commerzbank (CBKG.DE) issued unusual statements to reassure investors.

Some analysts forecast more pain for the sector as the episode spread concern about hidden risks in the banking sector and its vulnerability to the rising cost of money, called inflation.

The genesis of SVB’s collapse lies in a rising interest rate environment. As higher interest rates caused the market for initial public offerings to shut down for many startups and made private fundraising more costly, some SVB clients started pulling money out.

To fund the redemption’s, SVB sold a $21 billion bond portfolio consisting mostly of U.S. Treasuries on Wednesday, and said it would sell $2.25 billion in common equity and preferred convertible stock to fill its funding hole.

KITCO / ABC Flash Point Banking News 2023.