Silicon Valley bank failure crisis spreads, can the US government's "reassurance pill" come to the rescue?

　　China News Service, March 13th reported comprehensively that the Silicon Valley Bank of the United States suddenly announced its bankruptcy on the 10th, which caused a shock in the United States, and its impact is also spreading around the world.

　　As many businesses and depositors spent the weekend anxiously, the US federal government announced on the 12th that it will ensure that all deposits at Silicon Valley Bank are paid.

Meanwhile, financial regulators are discussing two different options for dealing with the fallout from a Silicon Valley bank failure if no buyer emerges.

　　What happened to Silicon Valley Bank exposed the fragility of the entire US banking industry.

Can the "reassurance" given by the US federal government reduce the impact of this crisis?

On March 10, 2023 local time, people stand at the gate of Silicon Valley Bank in Santa Clara, California.

Another bank in the United States was closed due to panic?

　　In just 48 hours, the United States staged the second largest bank failure in history.

　　On March 8, Silicon Valley Bank Financial Group, the parent company of Silicon Valley Bank, sold approximately US$21 billion in securities portfolio assets, resulting in a loss of approximately US$1.8 billion.

Since then, the bank has tried to sell a total of US$2.25 billion in stock financing, causing the stock price to plummet by more than 60% on the 9th, and was forced to stop trading on the 10th.

　　In total, Silicon Valley Bank customers withdrew a staggering $42 billion in one day as of Wednesday, according to California regulator filings.

This was the final straw, drawing an end to the bank's 40-year history.

　　Similar crises are also spreading to other small and medium-sized banks.

Since the US Federal Deposit Insurance Corporation (FDIC) only guarantees deposits below $250,000, and most of Silicon Valley Bank's customers are start-up companies, the money in the account is much more than $250,000, which also triggered a large-scale panic. .

Just recently, the New York-based Signature Bank was also asked to close by the New York State Government on the grounds that the bank had systemic risks.

Signature Bank is said to be one of the major banks used by the virtual currency industry.

Data show that by the end of 2022, the bank's assets will be US$110.4 billion, and its deposit balance will reach US$88.6 billion.

　　Singapore's "Lianhe Zaobao" pointed out that the situation encountered by Silicon Valley Bank has exposed the fragility of the entire US banking industry, especially those banks that have received a lot of "cheap money" during the epidemic and have not made serious investments.

Data map: Yellen.

Photo by China News Agency reporter Deng Min

Can the two options help tide over the crisis?

　　U.S. Treasury Secretary Yellen said earlier on the 12th that the federal government will not bail out Silicon Valley Bank, but is trying to help depositors who are worried about their funds.

　　The U.S. federal government announced on the same day that it will ensure that all deposits in Silicon Valley Bank are paid.

The statement was jointly issued by the Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC).

The statement said: "From the 13th, all depositors of Silicon Valley Bank can get all their money back. Losses related to the liquidation of Silicon Valley Bank will not be borne by taxpayers."

　　Financial regulators are discussing two different options for dealing with the fallout from the collapse of the Silicon Valley bank in the absence of a buyer, according to people familiar with the matter.

　　One way regulators could step in is by using the authority of the Federal Deposit Insurance Act to create a guarantee for SVB's uninsured depositors, the sources said.

The move would also touch on the systemic risk exception, which allows the Fed to take extraordinary action to curb contagion concerns.

　　The move is likely to boost market confidence in similar regional banks and institutions.

On the 13th, these banks and institutions will be open for business, and customers can withdraw cash from their accounts.

　　Another measure, a "universal banking facility" offered by the Fed, would support other financial institutions that have direct exposure to SVB so they don't have to materially change their operations or take huge losses.

　　Still, such moves may only be necessary if the FDIC is unable to find a buyer for all, or at least key parts of, SVB.

Bloomberg reported that the FDIC is holding an auction for the bank.

The Fed and FDIC will submit those recommendations to the Treasury Department before taking any action.

Data map: U.S. dollars.

Will the spread of the crisis bring about global problems?

　　The fallout from the collapse of a Silicon Valley bank is spreading around the world.

The UK branch of the bank is declaring bankruptcy and is no longer trading and accepting new clients.

　　The U.K. government is being challenged by the fallout from the collapse of a Silicon Valley bank, two people familiar with the matter said.

The Treasury Department is conducting surveys of start-ups about their current deposits, cash burn and use of banking facilities at Silicon Valley Bank and elsewhere.

　　Canadian authorities are facing similar challenges, with lending transactions at banks doubling in the past year.

Canada's Silicon Valley Bank had C$435 million in secured loans at the end of 2022, more than triple what it had at the end of 2021, according to regulatory filings.

　　AcuityAds Holdings Inc, a Canadian advertising technology company, is facing operational challenges caused by a shortage of funds because it parks large amounts of cash in Silicon Valley Bank.

　　Russian Satellite News Agency quoted economist and investment banker Yevgeny Kogan as saying that the bankruptcy of Silicon Valley Bank will not cause global problems, because the bank's depositors are mainly high-tech companies, and other economic sectors will be affected. will be smaller.

　　However, the risk of things going wrong still exists.

Yevgeny Kogan said: "This incident highlights the existing problems in the US banking industry. The Fed's use of raising interest rates as a tool to deal with inflation caused by the regulator's money printing has had a negative impact on the operation of the entire banking system. "