The Bankruptcy of Silicon Valley Bank is Beginning to Have an Impact Worldwide

photo: Anadolu Agency

The impact of the Silicon Valley Bank (SVB) collapse is spreading worldwide. In the UK, SVB's unit has been declared bankrupt, ceased operations and is no longer accepting new customers. As a result, on Saturday (11/3), leaders from around 180 technology companies sent a letter asking UK Chancellor Jeremy Hunt to intervene. 

"The crisis will begin on Monday and we ask you to prevent it now," UK startup founders and CEOs wrote in a letter to Hunt, as reported by Bloomberg on Sunday (12/3). 

The companies listed in the letter include Uncapped, Apian, Pockit and Pivotal Earth, who are anxiously awaiting information on the fate of their deposits. Some SVB deposits in the UK are insured, but it is unclear when the funds will be available.

Furthermore, deeper concerns among startup leaders are that the SVB collapse could potentially hinder future funding from venture capital into the UK. This is just the beginning. It should be noted that SVB also has a presence in China, Denmark, Germany, India, Israel, and Sweden. 

Founders warned that the bank's failure could wipe out branches worldwide. For example, SVB's joint venture in China, SPD Silicon Valley Bank Co, is trying to reassure its customers. Although they say that operations there are already self-sufficient and stable.

In Canada, SVB Financial Group's unit in the country reported that there was C$435 million in secured loans last year, which was twice the value from the previous year of C$212 million. 

In connection with this, Toronto-based advertising technology company, AcuityAds Holdings Inc., said they had deposited $55 million with SVB, which amounted to over 90% of their company's cash. AcuityAds halted trading of its stock on Friday after a 14% decline.

Worried About the Impact of Silicon Valley Bank's Closure, Regulators Urged to Find a New Buyer

photo: Deseret News

Several financial industry executives and investors are increasingly concerned about the collapse of Silicon Valley Bank (SVB) and its potential domino effect on other regional banks in the United States.

Quoting Reuters (11/3), these executives are worried that regulators may not find a buyer over the weekend to protect uninsured deposits. The Federal Deposit Insurance Corporation (FDIC) is trying to find another bank over the weekend that is willing to merge with Silicon Valley Bank. 

Some industry executives say such a deal would be big enough for any bank and is likely to ask regulators for special guarantees and other incentives for any buyer. Focused on lending to startups, SVB Financial Group became the largest bank to fail since the 2008 financial crisis on Friday, shaking the market and leaving billions of dollars belonging to companies and investors stranded. 

With assets of $209 billion, the Santa Clara, California-based lender is the 16th largest bank in the United States, making the potential list of buyers able to make a deal over the relatively short weekend.

The Federal Reserve and FDIC in the US are considering the formation of a fund that would allow regulators to support more deposits in troubled banks. The White House said on Saturday that President Joe Biden had spoken with California Governor Gavin Newsom about the bank and efforts to address the situation. 

"Everyone is working with the FDIC to stabilize the situation as quickly as possible," Newsom said on Saturday. Some top analysts and investors have warned that without a resolution early next week, other banks could come under pressure if people are worried about their deposits.

"The good news is that an SVB-style bankruptcy is unlikely to spread to large banks," risk and financial advisory firm Kroll said in a research note. Kroll added that small community banks could face problems and their risks are much higher if uninsured SVB depositors are not made whole and have to cut their deposits. 

Silicon Valley Bank has an unusually high level of deposits that are not covered by FDIC insurance, which is limited to $250,000.

Hedge fund manager and billionaire Bill Ackman warned that failure to protect all depositors could lead to the withdrawal of uninsured deposits from other institutions as well. 

"This withdrawal will drain liquidity from community, regional, and other banks and start the destruction of these vital institutions," Ackman cautioned. 

Regional and smaller bank stocks were hit hard on Friday, with the S&P 500 regional bank index falling 4.3%, bringing its losses for the week to 18%, its worst week since 2009. Signature Bank fell about 23%, while San Francisco-based First Republic Bank fell 15%. Western Alliance Bancorp fell 21% and PacWest Bancorp fell 38% after the shares were halted several times due to volatility. Charles Schwab Corp fell more than 11%. 

When IndyMac and Washington Mutual collapsed in 2008, the FDIC found other companies to take over assets and maintain deposits intact. If no buyers are found for SVB, uninsured depositors may have a portion of any funds that FDIC can obtain by selling bank assets. However, some experts see the impact of the last collapse as limited.

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