Last Friday, March 10th, word spread that Silicon Valley Bank (SVB) will be shut down by United States (US) officials. SVB, one of US’ startup-focused lenders, became the largest bank to collapse since the 2008 financial crisis, in a surprise collapse that roiled global markets and stranded billions of dollars belonging to companies and investors. Furthermore, SVB’s demise has impacted not only the tech world’s start-up sector, but also many of the industry’s big players. Roku, Circle, Buzzfeed, and Roblox all had significant sums in SVB. Although the rescue measures implemented by the Biden administration and the Bank of England could provide some relief, the global economy’s stability remains questionable.
Banks are considered as weapons of the economy, at the same as they can be our worst enemies. Moreover, Banks provide critical services to the economy, such as obtaining information on borrowers, providing a liquid way of saving, and determining who to lend to. They find a way to balance liquidity and rewards. The quest for liquidity entails real costs in the absence of financial intermediaries such as banks. Banks overcame this problem because the need for cash, while unexpected at the individual level, is more predictable in bulk transactions.
Brief Background of SVB’s Collapse
About half of all technology startups in the United States used Silicon Valley Bank. SVB began as a local bank in California, but as the local business grew, SVB discovered a niche, and when technology became a high-powered worldwide industry, SVB became a global bank. The lender specialized in high-growth start-ups, making it a feasible choice for digital enterprises that might otherwise struggle to get financial services. SVB’s downfall appears to have been precipitated by a lack of insurance. The great majority of SVB’s $157 billion in deposits at the end of last year exceeded the FDIC’s $250,000 deposit-insurance maximum, prompting investors to act fast and remove their funds.
SVB was the 16th largest bank in the United States at the end of last year, with around $209 billion (about $640 per person in the US) in assets. The specifics of the tech-focused bank’s rapid demise were murky, but the Fed’s aggressive interest rate hikes in the previous year, which had tightened financial conditions in the start-up area in which it was a significant player, looked to be front and center. While it attempted to acquire capital to counter fleeing deposits, the bank lost $1.8 billion (about $6 per person in the US) on Treasury bonds, the value of which was undermined by Fed rate hikes.
Silicon Valley Bank’s bankruptcy is the largest since Washington Mutual went bankrupt in 2008, triggering a financial crisis that crippled the economy for years. The 2008 crash spurred stricter regulations in the United States and elsewhere. Since then, authorities have established more strict capital requirements for U.S. banks into ensuring that the individual bank failures do not undermine the financial system or economy as a whole.
What Happened to Persons Directly Affected?
“Let us not forget, as a result of the 2008 financial crisis, eight million Americans lost their jobs, millions of families lost their homes, and small companies across the country failed,” said US Securities and Exchange Commission Chairman Gary Gensler.
The collapse of one of US’ largest lenders triggered panic and anxiety for its investors and depositors which in turn is being provided assurance by the US government that they will receive their money back. The FDIC stated in its announcement that insured depositors will have access to their funds by Monday morning. SVB’s branch offices will also reopen at that time, under the regulator’s supervision. For each account ownership type, the FDIC’s standard insurance covers up to $250,000 per depositor, per bank. Uninsured depositors will obtain receivership certificates for their amounts, according to the FDIC. The regulator stated that it will pay an advance dividend to uninsured depositors within the next week, with more dividend payments possible as the regulator sells SVB’s assets.
However, according to the FDIC, 89% of the bank’s $175 billion in deposits remained uninsured as of the end of 2022, and their fate is unknown. According to persons familiar with the case who asked anonymity because the details are classified, the FDIC and SVB’s parent corporation are scrambling over the weekend to find another bank ready to merge with Silicon Valley Bank. While the FDIC aims to complete such a merger by Monday to protect unsecured deposits, no agreement is guaranteed, according to the sources.
How Will SVB Affect Other Central Banks?
Bank runs can occur, and governmental responses should focus on limiting the panic rather than preventing financial excesses. The authors argue that financial authorities should create a safety net to prevent self-fulfilling panic while also implementing rules to limit the use of moral hazard. According to risk and financial advising firms,the collapse of one of US’ largest lenders could not affect other central banks assuring that an SVB-style bankruptcy is unlikely to extend to large banks. Unfortunately, small community banks may experience difficulties, and the danger is significantly larger if uninsured SVB depositors are not made whole and must accept a loss on their accounts. Even so, Silicon Valley Bank had an exceptionally high number of deposits that were not covered by the FDIC’s guarantees, which are limited to $250,000 per depositor.
As a result, regional banks in the United States are also down, with First Republic Bank down 16%, Western Alliance Bancorp down 8%, and PacWest Bancorp down roughly 24%. JPMorgan Chase, Citigroup, and Bank of America are all down between 3.5 and 5.5 percent.
How Will SVB Affect the Philippines?
“Banks have diverse deposit bases that span all sectors of the Philippine economy, allowing them to meet their clients’ liquidity demands on a continual basis.” The Bangko Sentral ng Pilipinas (BSP) alongside the Bankers Association of the Philippines (BAP) assures the Filipino people that despite the collapse of one of the largest lenders in the US, there is no threat for our country’s economy. Furthermore, the BAP also mentioned that the banks in the Philippines continue to have capital and liquidity ratios that exceed the BSP’s standards.
The news of Silicon Valley Bank‘s failure has sent shockwaves throughout the worldwide banking industry, with concerns increasing about the possible impact on global economies. While no Philippine banks have revealed direct exposure to the failing bank, analysts are keeping a careful eye on the situation to assess the overall impact on the region’s financial stability.
On the other hand, While the failure of Silicon Valley Bank has no direct impact on the Philippine Foreign Exchange (Forex) market, it does underscore the significance of monitoring the financial stability of industry counterparties. Forex traders and investors in the region should take note of this incident and ensure that they use due diligence and risk management measures while transacting in foreign currency with foreign institutions. Overall, the occurrence highlights the importance of awareness and prudence in the Forex market, particularly during times of economic instability.
Conclusion
One of the main takeaways from the collapse of one of the top lenders in the US is to constantly diversify your portfolio and avoid putting all your eggs in one basket. We cannot predict what would happen in the market if a corporation as massive as SVB collapses in front of our eyes. Investing in real estate is one of the best possibilities for investments and savings.
Whether you save money in the bank or make a fixed deposit, your annual return on investment is normally in the single digits. In contrast, depending on the rate of development in the location where you buy your landed property or structure, the return on investment can be enormous.
Bria Homes, fortunately, exists in the Philippines and aspires to give high-quality housing at an affordable price for every Filipino. They have done significant research on the greatest locations that will rise in value in the future.
