SVB collapse greed’s reckoning
The aftermath of Silicon Valley Bank’s closure, the second-largest bank failure in American history, persisted on Monday, causing worldwide banking stocks to decline. After closing 4% lower on Friday, European banking stocks were down 6.3% as of 12:40 p.m. London time on Monday after U.S. financial regulators closed SVB and took control of its deposits. The SVB panic caused all major U.S. indexes to conclude the week Friday at least 4% lower than they had begun, and on Sunday, regulators closed down Signature Bank, one of the key lenders to the cryptocurrency sector, citing systemic risks. Many depositors will be relieved to hear that all deposits will be fully refunded, according to U.S. federal regulators. But many investors and analysts believe that the SVB crisis is not an isolated episode and that it has its roots in a larger systemic issue.According to Keith Fitz-Gerald, a trader and principal of the Fitz-Gerald Group, “about who’s to blame here, I think that the greed and avarice that has long been there in Silicon Valley has come home to roost.” on Monday. We got the Federal Board of Reserve to go from fractional reserves to no reserves, which allowed financial institutions like SVB to start investing in assets rather than just making loans, according to him. “My argument is that banking should be monotonous, similar to watching paint dry, and whenever it isn’t, there is a problem. which, regrettably, is what occurred.SVB has been in business for 40 years and was regarded as a dependable source of funding for digital startups and venture capital firms. At the beginning of last week, SVB was the 16th largest bank in the U.S. The Silicon Valley’s largest bank by deposits was the SVB Financial Group division that operated the commercial lender in California. The Fed’s aggressive interest rate hikes impacted SVB Financial Group’s holdings, which included safe assets like U.S. Treasury bonds and government-backed mortgage securities, and their value plummeted.The turning point for the company occurred on Wednesday, when SVB revealed it had sold $21 billion worth of securities at a loss of about $1.8 billion, and that it needed to raise $2.25 billion to cover client withdrawal requests and finance fresh loans. Such information caused a panic-inspiring surge of withdrawals from VCs and other depositors, sending its stock price plummeting. SVB stock plunged 60% in a single day, causing a loss of more than $80 billion in bank shares worldwide. According to many market analysts, authorities have been negligent. SVB was actually much riskier than many other banks due to its strategy of focusing mainly on corporate deposits as opposed to retail deposits and retaining a big percentage of assets in loans and securities. Some claim that the bank’s failure was brought on by its executives’ gluttony for yield. After all, the bank’s holdings were disproportionately exposed to long-term interest rates, which are currently at a 15-year high in a bid to reduce inflation. The value of SVB’s securities was negatively impacted by the higher interest rates, which in turn undermined depositor confidence. Fitz-Gerald asserted that rather than the bank, this is the result of a flawed system. “I would say that not only are they culpable, they had a hand in inventing this mess,” he added in reference to federal and state authorities. SVB performed what they needed to do, perhaps, inside the framework of rules that are the issue. So, in my opinion, the system is flawed, or at the very least requires significant revision. Fitz-Gerald does not see 2008’s financial crisis and the collapse of SVB as a repeat of it. Also, he sees a reduced danger of contagion as a result of the emergency plan for depositor money announced by the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corporation on Sunday.
