Following the announcement of steps to strengthen its finances on Thursday, shares of Silicon Valley Bank (SVB), a significant lender to technology start-ups, fell sharply.
The four biggest US banks suffered a knock-on loss of market value of more than $50 billion as a result of this. On Friday, bank shares sank significantly in both Asia and Europe.
HSBC shares declined 4.8% and Barclays shares dropped 3.8% among UK banks.
On Thursday, SVB’s shares experienced their greatest one-day decline ever when they fell by more than 60% and lost an additional 20% in after-hours trading. The decline occurred a day after the bank revealed plans to raise $2.25 billion (£1.9 billion) by selling shares.
US Government officials speak on the issues:
The government of Joe Biden has additionally stated that measures put in place during the 2008 financial crisis will secure the nation’s economy notwithstanding Silicon Valley Bank’s closure.
US Treasury Secretary Janet Yellen has stated that she has complete faith in banking regulators to respond appropriately and has underlined that the financial system is still robust and that regulators have powerful instruments to handle this kind of occurrence.
Since Washington Mutual went down at the height of the financial crisis more than ten years ago, its demise is the biggest financial institution disaster. And those impacts came right away. Other firms with connections to the bank struggled to pay their staff and feared they could have to postpone plans, fire, or furlough personnel while they waited for funding.
Why did the Silicon Valley Bank fall?
The decline in technology stock prices over the previous year and the Federal Reserve’s aggressive intention to raise interest rates to fight inflation both had a significant negative impact on Silicon Valley Bank.
For the last couple of years, the bank purchased bonds worth billions of dollars using customer deposits, as a conventional bank would. Although these investments were generally safe, their value decreased because they carried lower interest rates than a comparable bond would have if it had been issued in the current climate of higher interest rates.
