Analysis of the Silicon Valley Bank Bankruptcy: The secret finally revealed!

On March 10, 2023, the Silicon Valley Bank was put into bankruptcy. This sudden collapse has raised concerns about the solidity of the American banking system and, in turn, European banks. \n\nFaced with this situation, the American authorities announced on Sunday March 12 that they would guarantee all withdrawals of deposits. SVB and provide financing to honor their customers' withdrawal requests via a $25 billion loan from a Treasury reserve. \n\nFrench concern was then dissipated by Bruno Le Maire, Minister of Economy and Finance, which ensured that the French banking system was not exposed to the risks of contagion resulting from the Silicon Valley Bank bankruptcy. \n\nDespite this newfound calm, the group HSBC announced an interesting acquisition for its English branch: that of the Silicon Valley Bank UK, redeemed for 1 pound sterling. A strategic purchase for the group which saw this transaction as an opportunity to strengthen its commercial banking franchise and improve its ability to serve innovative and fast-growing companies, including in the technology and finance sectors. \n\nThis bankruptcy is symptomatic of an increase in risks linked to the financing of technology companies. We will see through this text what were the main causes leading to the bankruptcy of the Silicon Valley Bank and how the American banking system was able to react to this crisis. \n

Main reasons leading to the bankruptcy of Silicon Valley Bank

\nThe main reasons leading to the bankruptcy of Silicon Valley Bank are multiple. The first is linked to its very activity: specialized in financing new technological companies, the bank faced an unprecedented crisis. \n\nIndeed, the new technologies sector has experienced a significant decline, following in particular a lack of investment and an increase in taxes. \n\nThus, the market weakened causing a significant increase in payment defaults, damaging the activity of Silicon Valley Bank. \n\nIn addition, the financial institution did not have enough equity capital to withstand external pressures. \n\nIts capital ratio had not been properly measured and its liquidity management was found to be insufficient. \n\nSuch fragility led to a weakening of the financial structure and therefore mandated the intervention of the American government in order to safeguard the banking system. \n\nRead also: Discover the advantages and services offered by La Banque Postale for better management of your financial assets\r\n

Reaction from the American authorities

\nFaced with such a crisis, it was essential that the American authorities react quickly in order to mitigate the negative effects caused by the bankruptcy of Silicon Valley Bank. To avoid a international contagion, two measures have been put in place: \n\n•Guarantee complete withdrawals from SVB deposits \r\n

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- The American authorities announced, Sunday March 12, that they would guarantee all withdrawals of deposits SVB and also allow access to all the deposits of its sister, the Signature Bank.
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\r\n• Provide funding to honor withdrawal requests \r\n

There Federal Reserve (American central bank) is committed to lending funds to other banks that need them to honor withdrawal requests from their customers. This program is financed by $25 billion from a Treasury reserve.

Acquisition of the English subsidiary by the HSBC group

\r\nHSBC announced on Monday that it had bought the British subsidiary of the Silicon Valley Bank. The acquisition was hailed by group chief executive Noel Quinn as “completely strategically sound”. \n\nIt strengthens the group's commercial banking franchise and will enhance its ability to serve innovative and fast-growing businesses. \n\nIn addition, it will be a source of solid profitability, estimated at 1.4 billion pounds sterling or 1.7 billion dollars in relation to the shareholders' equity of the company. SVB UK. \n\nThe bankruptcy of the Silicon Valley Bank has raised many concerns about the stability of the American and international banking system. \n\nHowever, the American authorities were able to act in a timely manner to mitigate the harmful effects of this crisis, in particular through deposit guarantees and specific financing of banking institutions that had suffered significant losses. \n\nIn addition, the purchase of the British subsidiary by the HSBC group made it possible to take advantage of it, thus allowing a strengthening of its activities and a solidification of its portfolio portfolio. \n

Today, the American banking system and European seems to have recovered, but remains prey to financial risk. Investors should remain vigilant and carefully monitor ongoing developments to prevent another similar crisis.

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