Why Silicon Valley Bank Collapsed and what it could mean
Two of America’s major banks have collapsed- California’s Silicon Valley Bank and New York’s Signature Bank. Some common questions that might hit everyone’s mind are:
- What exactly happened?
- How did it happen?
- And what will be the probable impacts?
Come, let’s try to understand through this article.
Silicon Valley Bank is one of America’s 16 big banks. It started in 1983 and has an approx 40-year history of being the biggest bank in Silicon. America’s Silicon Valley is famous because of its big technology. It is engaged in big IT companies providing services like Google, Apple, Facebook, LinkedIn, etc. The headquarters of these companies are in Silicon Valley.
The main business of every bank is to deposit funds and give loans. The difference between earning interest in providing loans and paying deposits makes up the bank’s profit. All banks work on the pattern of earning more interest on the loan and paying less interest on the deposit. It makes a basic structure of every bank to make money. Silicon Valley Bank also does the same. The only difference is that this bank gives almost 56% of loans to venture capitalists and startup companies.
The problem arose when due to an increase in the interest rate of treasury bonds, investors started withdrawing funds from Silicon Valley Bank to invest in treasury bonds. On March 8′ 2023, Silicon Valley Bank, the parent company of Silicon Valley Bank Finance Group, announced that they sold $21 billion worth of securities to raise funds at a loss of $1.8 billion.
Apart from this, they were also planning to raise 2.25 billion dollars. This news shocked all investors, and because of this panic, SVB Financial Group’s stock fell rapidly from $267.83 to $106 on Thursday. It was a percentage-wise fall of 60% in just two days, a considerable amount, and from here, it all started and happened.
From this, you must have understood why this crisis happened.
What are the probable impacts?
- It will be pressurized to increase costs as a result.
- It will create issues in terms of human resources.
- Increase in the usage of IT Tools.
- Increase in Federal Reserve interest rate.
Sweden’s largest pension fund Alexa has suffered a lot due to the fall of SVB shares, as he had its shares. But on this, he says that he had only a 1% holding in his portfolio, so there is nothing to worry about.
On March 10, 2023, FDIC (the Federal Deposit Insurance Corporation) closed Silicon Valley Bank, among others, and the bank is trying to get out of this crisis.
Due to all these factors, the problem of Silicon Valley Bank is visible, but there is no direct impact on the Indian stock market. But if the US market falls, the Indian market will also fall into that panic. It is nowhere available if you want to extract the fundamental connection. There’s just an impact of the US fall so that the Indian market will fall.