The Silicon Valley Bank and First Republic Collapses: Management Cares, Risks, and the Impact on Venture Capital Markets and Cryptocurrencies
After Silicon Valley Bank collapsed, First Republic was under intense scrutiny. Yet 11 of the country’s biggest banks, led by J.P. Morgan Chase, threw First Republic a lifeline when they deposited $30 billion in it.
The Federal Deposit Insurance Corp took possession of First Republic, according to the California Department of Financial Protection and innovation.
Silicon Valley Bank was the biggest bank failure since the 2008 financial crisis. The institution will be taken over by the Federal Deposit Insurance Corporation.
The New York regulators decided to close the bank over concerns that keeping it open could endanger the financial system. Some banks recently opened their doors to cryptocurrencies.
“That fear, that mass exodus that people were concerned about just didn’t happen,” says Jared Shaw, a bank analyst at Wells Fargo Securities, who notes lenders were proactive.
“One of the things the banks did a good job with is reaching out to their customers, and explaining their balance sheets.”
On Friday, the Federal Reserve and the FDIC issued reports on what led to the collapses of those two lenders. They blamed management for not doing enough to watch the banks.
Depositors will have access to their money, and the taxpayer won’t lose money from either bank failure, according to announcements made by the Federal Reserve, Treasury Department and the F.D.I.C.
Silicon Valley Bank said in a letter to stakeholders that they needed to shore up their finances due to a dim economic environment for tech companies.
Silvergate, a California-based bank that made loans to cryptocurrency companies, separately announced that it would cease operations and liquidate its assets after suffering heavy losses.
Gregory Becker, the chief executive of Silicon Valley Bank, urged venture capital firms to remain calm on a conference call. But panic spread on social media and some investors advised companies to move their money away from the bank.
A Silicon Valley Bank executive wrote in a note to clients that it had been a difficult day but that the bank was actually well-equipped to deal with it.
First Republic, Signature Bank, and Western Alliance all fell in value as investors dumped their shares. The nation’s largest banks were more insulated from the fallout, with shares of JPMorgan, Wells Fargo and Citigroup generally flat.
A torrent of deposits left Signature Bank after customers began panicking, the 24year old institution provided lending services for real estate companies and law firms.
The Fed said it would set up an emergency lending program in order to give more funding to eligible banks and ensure that they could fulfill the needs of their depositors.
President Biden said in a speech that the U.S. banking system was safe and insisted that taxpayers would not pay for any bailouts in an attempt to ward off a crisis of confidence in the financial system.
Banking Crisis Failure Timeline: First Republic Bank’s $30 Billion Lifeline and Credit Suisse’s $175 Billion Bonds
First Republic shares plunged 60 percent after the seizure of Silicon Valley Bank and Signature Bank.
Credit Suisse shares tumbled after investors started to fear that the bank would run out of money. Officials at Switzerland’s central bank said it would step in and provide support to Credit Suisse if necessary.
First Republic was in danger of collapse when 11 of the U.S. banks came together to give it $30 billion. The plan was hatched by Ms. Yellen and Jamie Dimon, the chief executive of JPMorgan Chase. The Treasury secretary thought actions by the private sector would reinforce confidence in the banking system. The bank’s share price surged on the announcement.
After the $30 billion lifeline was announced, First Republic was in talks to sell part of its business to other institutions or private equity firms.
UBS, Switzerland’s largest bank, agreed to buy its smaller rival, Credit Suisse, for about $3.2 billion. The National Bank of Switzerland will lend 100 billion Swiss Francs to help with the deal. The Swiss financial regulatory agency wiped out $17 billion worth of Credit Suisse’s bonds and eliminated the need for shareholders to vote on the deal.
Source: https://www.nytimes.com/2023/05/01/business/banking-crisis-failure-timeline.html
The rise of Silicon Valley Bank: the impact of the Trump administration on central banks and the global financial system – a brief response of the Fed and other central banks
The Fed and five other global central banks took steps to ensure that dollars would remain readily available in a move intended to ease pressure on the global financial system.
Mr. Biden called on financial regulators to strengthen oversight of midsize banks that faced reduced scrutiny after the Trump administration weakened some regulations. Banks would be required to protect themselves against potential losses and have enough cash on hand in case of a crisis under the president’s proposal.
Lawmakers grilled officials from the F.D.I.C., Fed and Treasury Department about the factors that lead to the downfall of Silicon Valley Bank.
The country’s largest banks — including JPMorgan Chase, Citigroup and Wells Fargo — reported robust first-quarter earnings, signaling that many customers had developed a strong preference for larger institutions they viewed as safer.