The collapse of Silicon Valley Bank (SVB) has not only revealed billions of dollars in loss but also rattled the technology industry, which had been leading innovation in the past years but yet was disturbed by layoffs and bankruptcies for months.
Small businesses and start-ups using the bank as their sole bank account were left in limbo. Investors were scrambling to guard against possible market downturns. And the U.S. government's promise to let depositors access their money cannot stop worries about a systemic contagion.
Experts argued that signals of SVB's failure could have been spotted in advance, had legislators not eased rules for some lenders in recent years, according to a Financial Times article.
America's Dodd-Frank Act had required banks with more than 50 billion U.S. dollars in assets to face intensive federal supervision, but the 2018 rollback lifted the threshold to 250 billion, leaving the act unable to protect consumers from actions by banks.
Despite the fact that SVB's asset size grew at boiling speed, from 45 billion dollars in 2016 to more than 200 billion dollars by the end of 2022, according to the New York Times, the bank was below the line of the stress tests as well as capital and liquidity requirements.
Here is the reality: SVB was loaded with long-term bonds as it bets on interest rates staying low. However, the U.S. Fed hiked up rates by 450 basis points in a year to deal with inflation.
Central banks and regulators are to blame for failing to inoculate better standards and paying inadequate attention to interest rate risks, FT wrote.
There is an old adage that the U.S. Federal Reserve tightens until something breaks, said an investment strategist Liz Ann Sonders in her interview with Consumer News and Business Channel. "I think this (SVB) is clearly an example of something breaking."
The collapse of SVB is the largest bank failure since the collapse of the U.S. savings and loan association Washington Mutual in 2008, sending ripples through the global financial systems.
U.S. regulators on Sunday closed New York-based Signature Bank, a key lender in the crypto industry, citing systemic risk. The decision was made only 48 hours after the SVB collapse.
According to media estimates, 291 billion euros (311 billion U.S. dollars) of value were lost on European stock exchanges in trading on Monday.
The British pound rose to the strongest rate in weeks, trading at almost 1.22 U.S. dollars. The collapse "has hurt the U.S. dollar as market pricing of interest rate expectations has massively shifted," said market analyst Kenny Fisher from online forex trading platform and broker OANDA.
Asian markets, likewise, sank with banks "bearing the brunt of the selling on fears of contagion in the sector," French medium Agence France-Presse reported, and according to Bloomberg News, an amount of 465 billion U.S. dollars had been shed in the SVB fallout in two days.
The previously 16th largest bank in the United States was closed by regulators on March 10. SVB was the largest lender in Silicon Valley and had been a frequent underwriter for technology start-ups.
The move came after the bank announced that it lost 1.8 billion dollars in the sale of U.S. treasuries and mortgage-backed securities it had invested in, owing to rising interest rates.