The US government takes emergency measures to secure the banking system after the collapse of Silicon Valley Bank (SVB) and Signature Bank. SVB, which catered to technology companies, was closed down by regulators on Friday due to its inability to raise funds to cover losses from the sale of assets impacted by higher interest rates. Depositors of SVB and Signature Bank are fully protected and can access their funds from Monday without any losses borne by taxpayers. President Joe Biden promised to ensure that those responsible for the failure are held accountable.
The Federal Reserve announced a new Bank Term Funding Program to assist banks in accessing emergency funds. SVB’s collapse is the most significant failure of a US bank since the 2008 financial crisis. Still, the government remains confident in the banking system’s resilience due to reforms made after the crisis to provide better safeguards for the industry.
Silicon Valley Bank (SVB)
Over the weekend, Silicon Valley Bank (SVB) depositors were left worried about their money being stuck in the bank after its collapse. Some depositors expressed their concerns, while others were confident that the government would help. Depositors have welcomed the US government’s move to guarantee the deposits. Still, some critics argue that it sets a bad precedent and raises questions about preferential treatment given to influential tech elites. However, the government’s statement clarifies that taxpayers will not be paying for this. SVB catered mainly to start-ups and venture capitalists in Silicon Valley.
Meanwhile, the Canadian banking regulator has temporarily controlled SVB’s assets in the country and intends to seek permanent control. HSBC has bought the UK arm of SVB, and customers can now access their money as usual. The collapse of SVB has created ripples in Silicon Valley, and the US government’s quick action is seen as a preventive measure to stop contagion from spreading to other banks.
Although the government’s announcement regarding the collapse of SVB has caused some uncertainty about the bank’s future, the news has positively impacted the financial markets, particularly in Asia. While some experts have voiced concerns that depositors may withdraw their funds from other financial institutions, leading to a broader financial crisis, economists have pointed out that the failure of SVB is different from the collapse of Lehman Brothers; Economists have reassured that the inability of SVB does not pose a significant risk of a broader financial crisis, unlike the collapse of Lehman Brothers that led to the 2007-08 financial crisis.
Campbell R. Harvey, a renowned professor at Duke University’s Fuqua School of Business, has stated that SVB’s failure is distinct from the central banks that collapsed during the 2007-08 financial crisis, as SVB is not considered a top-tier bank and has focused on serving tech investors in Silicon Valley, leading to its overreliance on the tech sector that has suffered significant losses over the past year.
He explained that during the global financial crisis, multiple big players were highly correlated and at risk, but this is not the case with SVB, which mainly focused on tech investors in Silicon Valley. Harvey emphasized that SVB’s overreliance on the tech sector, which has experienced significant losses over the last year, led to its collapse.
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