Wednesday , March 22 2023

UK & US try to stem fallout from Silicon Valley Bank collapse


LONDON/ WASHINGTON: Governments in the United Kingdom and the United States have taken extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank (SVB), even as another major bank was shut down.

The UK Treasury and the Bank of England announced early on Monday that they had facilitated the sale of SVB UK to HSBC, Europe’s biggest bank, ensuring the security of 6.7 billion pounds ($8.1bn) of deposits.

British officials worked throughout the weekend to find a buyer for the UK subsidiary of the California-based bank. Its collapse was the second-largest bank failure in history, behind only the 2008 failure of Washington Mutual.

US regulators also worked all weekend to try to find a buyer. Those efforts appeared to have failed on Sunday, but US officials assured all depositors that they could access all their money quickly.

The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.

In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110bn in assets, Signature Bank is the third-largest bank failure in US history.

Santa Clara-based SVB, the US’s 16th largest bank, has been imperiled since Friday, when its assets were seized following the mass withdrawal of funds by depositors.

The bank’s financial health had been under scrutiny following its announcement of plans to raise $1.75bn in the capital after the loss-making sale of bonds

In a brief news conference on Monday, US President Joe Biden sought to dispel concerns, saying “all customers who had deposits in these banks can rest assured rest assured, they’ll be protected and they’ll have access to their money as of today”.

This includes small businesses across the US, said Biden, who also pledged that “no losses would be borne by the taxpayers”. “We must get the full accounting of what happened,” he told reporters. “In my administration, no one is above the law.”

SVB, whose business heavily catered to technology workers and venture capital-backed companies, had approximately $200bn in assets at the time of its collapse.

Campbell R Harvey, a professor at Duke University’s Fuqua School of Business, said SVB was not among the biggest banks and had failed for different reasons than institutions that collapsed in 2007-08.

“If you think about the global financial crisis, there were a number of banks that were at risk at the same time and we started to learn about them and these were not small players these were big players and they were all highly correlated,” Harvey told media. “This bank is different. It’s not in the top tier. Most people never heard about it but it’s been focused on tech investors in Silicon Valley … so I don’t see the similarities with 2007 at all.”

Harvey said while multiple banks were extremely over-leveraged in the run-up to the 2007-08 crisis, SVB had failed due to its overreliance on the tech sector, which has lost trillions of dollars in value over the last year.

“SVP is a story about an undiversified loan book,” he said. “That’s different.”

Bank shares in Europe and Asia plunged as the collapse continued to batter markets, while US large banks failed to hold onto a brief premarket rally after authorities moved to stem the contagion.

Europe’s STOXX bank index was down 4.3 percent on Monday, having shed 3.78 percent on Friday, leaving it on track for its biggest two-day fall since Russia began its invasion of Ukraine in February 2022. (Int’l News Desk)

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