In a single day, $42 billion was withdrawn from Silicon Valley Bank's bank accounts. Over a quarter of the total. While the dust is beginning to thin out around the biggest failure of a US credit institution since the collapse of Washington Mutual in 2008.
The phenomenon is called "bank run", ie the race to withdraw money from current accounts, the financial press tries to reconstruct what happened in a relatively short time, to push the Federal Deposit Insurance Corporation (which guarantees deposits on current accounts) to close access to customers and take control of the group.
In the US, bank accounts are guaranteed up to a maximum amount of 250,89 dollars. The problem is that a large part of this bank's clientele is made up of professional investors, SMEs in the technology sector, startups or established companies that have accounts with figures often above the protected threshold. According to the FDIC itself, 175% of the $2 billion in deposits is not covered. And when an agency in the State of California sounded alarms about the bank's solvency, panic erupted. All those, individuals or companies, who had unprotected deposits and who had learned of the failure rushed to try to withdraw the funds before ending up trapped in bankruptcy proceedings. The trigger started from the announcement on Wednesday evening by the bank, until then considered well capitalized and solvent, of its intention to raise 25.<> billion dollars in new loans, mainly through the issue of bonds. A decision that took operators and customers by surprise, negatively.
According to some reconstructions, the bank would have found itself in trouble on liquidity after an initial series of deposit withdrawals following the collapse of Silvergrade, one of the many cryptoasset groups that have failed in recent weeks. Silicon Valley Bank had already sold all the easily transferable assets to raise cash. And when he announced his intention to raise new funds due to new market jitters, and new withdrawals from accounts, he had no further margins.
Attempts to cool the situation by CEO Greg Becker, who asked customers to "stay calm" had the diametrically opposite effect. In a few hours on Thursday, SVB stock lost 60%. And on Friday he started collating again. From nearly $270 on Wednesday, it plummeted below $80 on Thursday, and in the after-hours it continued the collapse to a theoretical value of $39.
The fact is that this financial disaster has also occurred in the context of a drastic tightening of the monetary line carried out in recent months by the Federal Reserve, in response to galloping inflation. Just this week, Tuesday afternoon, Chairman Jay Powell revived the bullish rhetoric on rates, warning that if all the data justified it, the Fed would be ready to accelerate the increases in the cost of money.
The federal authority has announced that customers will be able to start withdrawing their deposits on the afternoon of Monday, March 13, but obviously this does not give any guarantee to those who are not below the insured threshold. In the coming days we will see if the disruption will have further repercussions. Meanwhile, it has triggered downward pressure on the entire banking sector, not just the US.