SVB Collapse Reverberates Across Markets
U.S. authorities took emergency action over the weekend to shore up the banking system after Silicon Valley Bank (SVB) and Signature Bank collapsed.
Businesses and people who have money deposited with SVB would now be able to access their money from Monday, the government said. Regulators also closed New York based Signature Bank after mounting pressure.
President Joe Biden in a statement said he promised to hold ‘those responsible for this mess, fully accountable’.
SVB Closed Down
SVB – which specialised in lending to technology companies was closed down by regulators and became the largest failure of a U.S. bank since the financial 2008 crisis.
Silicon Valley Bank was created in 1983 and expanded rapidly during the last decade. It came under increasing pressure as higher interest rates made it more difficult for start-ups to raise money.
The reverberations from the collapse have been widespread as companies face questions about what it means for their finances.
Will the contagion spread? Global stock markets react adversely.
HSBC announced it was buying SVB’s UK arm for £1. The deal followed talks as the government and Bank of England sought a solution. The news bought relief to UK tech firms who feared going bust
The Bank of England said no other UK banks had been ‘materially affected’ by SVB’s collapse. Chancellor Jeremy Hunt also said there was ‘never a systemic risk’ to the UK’s financial stability but that there was a very real risk to these tech start-up which are a big part of the UK’s future.
Elsewhere, France’s economy minister said U.S. bank failures did not create a risk of contagion, and Germany’s finance watchdog said SVB’s collapse did not pose a threat to financial stability.
But investors still took fright, with the US dollar and oil prices also slipping too.
Markets are ‘edgy’ despite the best efforts of governments and regulators.
There was already enough to worry about whether it be the conflict in Ukraine, rising interest rates, inflation without a potential banking crisis aswell. Investors and business are spooked!
Will rising interest rate uncover more ‘financial ticking time bombs’?
First Republic dropped some 60% but said it had received additional liquidity funding to shore up its position.
So, everything is now okay…?