• The Silicon Valley Bank (SVB) is facing a financial crisis due to Federal Reserve (Fed) Chairman Jerome Powell’s hawkish macroeconomic view and tightening policies.
• SVB launched a $1.75 billion securities sale to raise capital and try to recoup its earlier losses, raising concerns among investors.
• Californian regulators have closed the bank, leading to major disruption and uncertainty amongst investors.
Silicon Valley Bank in Crisis
The Silicon Valley Bank (SVB) is facing a significant downturn in its shares, falling more than 60% since Thursday due to Federal Reserve (Fed) Chairman Jerome Powell’s hawkish macroeconomic view and tightening policies. This has caused major disruption and uncertainty amongst investors in the over 40 year old bank.
Raising Capital
In an attempt to raise capital for recouping its earlier losses, SVB launched a massive $1.75 billion securities sale on Wednesday which raised further concerns amongst investors as it is unclear whether it will be sufficient for covering their losses. Additionally, Silicon Valley Bank CEO Gregory Becker has been calling customers to assure them their capital is “safe” in the bank, however this proved inaccurate due to the subsequent events.
Closed by Regulators
Californian regulators have subsequently closed down the bank until further notice, leading many employees of SVB sent home until then with no clear indication as to when they may return or what will happen next with the company. This latest event marks one of the largest bank failures in history according to several reports regarding this issue.
Implications
As Silicon Valley Financial Group was considering options for exiting this crisis prior to these events including a potential sale, there are now even more questions around what will happen next with the future of this institution up in the air at this point in time. Further implications include further damage caused by policies aimed at controlling inflation which affects technology sector that SVB serves as well as other banks potentially facing similar issues due their reliance on venture capitalists and tech startups for business activity.
Conclusion
It remains uncertain just how much longer Silicon Valley Bank’s troubles will last or what kind of impact it will have on global markets moving forward but it’s clear that tighter regulations from central banks can quickly lead to serious consequences for lenders like SVB who depend on venture capitalists and tech startups for business activity going forward.