The US Federal Deposit Insurance Corporation (FDIC) ordered the closure of Silicon Valley Bank on Friday. Along with this, the entire deposit amount of the bank was taken over with immediate effect.
Image Credit source: Representational Image
US Federal Deposit Insurance Corporation (FDIC) Silicon Valley Bank (Silicon Valley Bank) Ordered to close on Friday. Along with this, the entire deposit amount of the bank was taken over with immediate effect. This is the biggest bank failure since the 2008 financial crisis. (Bank Failure) is one of the. Just two days before this, the bank had announced that it was selling shares to make up for the huge decline in its deposits. After this both the investors and customers of the bank got scared. But how did the bank reach this condition? Let’s understand it.
The bank’s ruin has a connection with the US Federal Reserve raising interest rates. The US central bank had increased interest rates to control inflation. Due to this, the value of existing bonds declined. Which were issued at a lower interest rate. The bank had bought these bonds, so it had to bear the loss. Due to rising interest rates, there was also a decline in funding for startups. Let’s see the complete timeline.
such a ruined bank
- In the year 2021, the deposits of Silicon Valley Bank have reached the level of $ 189 billion. After some time it also hit a record of $198 billion.
- After this the bank invested in bonds on a large scale. At this time there was an atmosphere of low interest rate. At the end of 2022, $ 91.3 billion of securities were present in the balance sheet of Silicon Valley Bank.
- Then, in 2022, the US Federal Reserve began raising interest rates, driving down the value of low-rate bond holdings.
- Due to rising interest rates, venture capital companies also cut funding for startups. This caused problems in terms of funding for some time.
- With the decline in funding, the amount of money that startups deposited with institutions like Silicon Valley Bank also saw a decline. Because of this the bank was forced to sell its securities at a loss.
- On Wednesday, the Silicon Valley bank announced that it sold $21 billion in bond assets at a loss of $1.8 billion. He also said that he is raising an amount of $ 2.25 billion through the sale of shares.