Rabat – The news of the collapse of the biggest startup-focused bank in the US is triggering worldwide concerns surrounding a potential looming global crisis.
Silicon Valley Bank (SVB), the 16th largest bank in the US, collapsed over two days, with the California authorities shutting down the bank on Friday. The news roiled the market on the following day.
The bank collapse came as customers withdrew their deposits, a phenomenon referred to as a “bank run” in the finance world.
While the bank resorted to its billion dollars worth of bonds to cushion the drop in liquidity, the rising interest rates significantly lowered the value of bonds. SVB sold the bonds at a substantial loss, converging reports indicate.
“SVB was obviously the beacon of the start-up venture community for four decades. Almost, you know, one of those institutions that everyone viewed as too big and too strong to fail,” former banker, Samir Kaji, told Euronews Next.
According to reports, the bank suffered a blow to its liquidity as its client base, which consists mainly of tech companies and Venture Capitals (VCs), needed more cash in the past two years as the flow of investments took a hit.
The news of the fallen bank, which was formerly considered too big to fail, struck a grim comparison with Bear Stearns, the ex-global bank’s failure in 2007 that had marked the start of the global financial crisis that brought the global economy to its knees.
While some experts see the collapse of SVB as an indicator of another crisis waiting to happen, others have taken a more optimistic approach, arguing that the bank’s high exposure to one sector made it vulnerable to market fluctuations within that industry.
“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall,” Hedge Fund manager, Bill Ackman, wrote on Twitter.
A CNN report further indicates that analysts are convinced for now that the failure appears to be largely specific to startups and tech companies, as their high-interest rates have dried up.
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