Biggest 'Black Monday' since Silicon Valley Bank's bankruptcy financial crisis

The Silicon Valley bank failure, linked to the United States and the United Kingdom, is the second-largest bank in US history and the largest US bank collapse since the 2008 financial crisis, marking the first case in which damage to bond holdings has been linked to a bank failure.
It predicted Korea's Black Monday.

The Federal Deposit Insurance Corporation (FDIC) announced on the 10th that it would acquire the 40-year-old Silicon Valley Bank, headquartered in Santa Clara, Calif., the bank's 16th largest in the United States.

Stocks in Silicon Valley banks traded, including America's First Republic, Signature Bank and Western Alliance, dumped on the day, while stocks in at least five banks fell steeply, putting stock exchanges under volatility limits throughout the day.

In the UK, Silicon Valley Bank (SVB) stocks crashed on the 10th and spilled out to other US and European banks.

According to Reuters, by its own calculations, US banks lost more than $10 billion in stock market value over the two days from the 9th to the 10th, and European banks lost more than $5 billion in value.

US banking regulators bought parent company SVB on the 10th to protect depositors in the biggest bank failure since the financial crisis, causing the global banking sector to lose billions of dollars in market value, Reuters said.

Reuters reported, “SVB Financial Group, a startup-focused lender, will become the largest bank since the 2008 financial crisis on the 10th, and its sudden collapse has shaken global markets and stranded billions of dollars belonging to companies and investors.”

The New York Times said, "The Silicon Valley bank's fiasco comes just two days after emergency measures to process withdrawal requests and a sharp decline in the value of its investment holdings shocked Wall Street and depositors, leaving stock prices worried." The bank, which had assets of $20.9 billion at the end of 2018, was working with financial advisors until the morning of the 10th to find a buyer.”

Bank failures occurred on the 8th as the Fed bought huge amounts of bonds just before it started raising rates a year ago, unprepared for the possibility that interest rates would rise very quickly, and with their Treasury holdings paying more interest as interest rates rise. declared bankruptcy after suffering a loss of nearly $2 billion when it was forced to sell some of its stock holdings in a surprise public disclosure.

Losses from large-volume purchases of low-priced bonds at low interest rates increased due to rising interest rates, and demand for start-up funds plummeted due to rising interest rates, and customers' withdrawals from banks began to grow.

The crisis is having ripple effects at some regional banks.

Signature Bank, a lender to the startup community that has been on the verge of bankruptcy, is best known for its relationship with former President Donald J. Trump and his family.

First Republic Bank, a tech corporate lender, warned that recent rises in interest rates in its wealth management and private banking services for high-net-worth clients in the tech industry are hampering its ability to earn returns.

Phoenix-based wealth management lending bank Western Alliance Bank has also faced similar pressure, with Silvergate Bank on the 9th announcing liquidation due to cessation of operations after suffering heavy losses from its exposure to the cryptocurrency industry.

A press release from Silicon Valley Bank said "deposits are still strong" and "asset quality is still excellent". A representative for the Insurance Corporation (F.D.I.C.) also declined to comment.

Regarding the Silicon Valley bank's investment operations, the NYT said, "The bank has placed a significant portion of its customer deposits in long-term Treasury bonds and mortgage bonds that promise moderate and steady returns when interest rates are low." However, it appears that the financial contagion has spread through parts of the banking sector.”

Regulators in the US said the same day that the new entity would operate until the 13th of next week and that checks issued by the old bank would continue to be liquidated.

Customers with deposits up to $250,000, the maximum amount covered by Federal Deposit Insurance Corporation (F.D.I.C.) insurance, are protected, and depositors with excess funds in their accounts have no recovery guarantee.

Over-deposit customers will receive a certificate of uninsured funds, which will allow the FDIC to proceed with repayment of funds recovered while the Silicon Valley bank is under management.

Previously, when IndyMac Bank of California went bankrupt in 2009 during the financial crisis, as with Silicon Valley banks, there were no immediate buyers, so the FDIC continued to manage IndyMac, and large depositors ended up getting only a portion of their uninsured funds.

In another case, when Washington Mutual was acquired by JPMorgan Chase, account holder investments were preserved.

Silicon Valley Bank UK announced on the 10th that it is a separate entity with a board independent from its parent company and other subsidiaries.

The UK’s Financial Times reported on the 10th that SVB’s UK branch had requested 100 million pounds of liquidity from the Bank of England (BoE) as a discount window facility to provide emergency funds to the bank if adequate collateral was secured.

The Bank of England announced on the 10th that the bankruptcy proceedings following action by US regulators would allow some depositors to recover up to £85,000 ($102,000) for lost deposits or £170,000 in the case of joint accounts, while other assets and liabilities are to be paid by the bank's liquidators. The managed and recovered funds will be delivered to creditors.

Commenting on the SVB Financial Group bankruptcy, Reuters reported, the Bank of England said, "SVB UK has a limited presence in the UK and lacks critical functions to support the financial system. In the meantime, the company will cease accepting payments or deposits."

 

The Wall Street Journal reported that as of the end of last year, SVB's deposits exceeding the FDIC insurance limit were $151.5 billion (200.5 trillion won), and 86% of SVB's total deposits were not covered by depositor protection.
According to the FDIC, as of the end of last year, SVB's total assets were $209 billion (276 trillion won) and total deposits were $175.4 billion (232 trillion won).

The corporate value was $44 billion just 18 months ago, but as the money supply increased at zero interest rates, it sold 80% of its government bonds and mortgage securities, which it purchased in large quantities during the boom period, due to a surge in interest rates, and went bankrupt with a loss of $1.8 billion (after-tax financial statements).
When it announced the issuance of new shares worth $2.25 billion (3 trillion won) to secure liquidity after losses, the stock price plummeted 60% immediately after the announcement.

After the financial crisis in 2009, SVB participated in attracting investments worth 230 billion dollars (303 trillion won) in venture companies such as technology healthcare start-up Cyber Security, and Korea took advantage of the surge in technology stocks.

Then it leads to Black Monday.

 

The National Pension Service held 100,795 shares (23 million dollars, 30.4 billion won) of shares in SVB Financial Group as of the end of last year, and the value plummeted by 1/3. At a meeting on the 12th, the senior secretary for economic affairs in the presidential office said, "There is no domestic bank that has exposure to SVB or Silicon Valley, so there is no impact on the overall market."
After the meeting, they said, "The prevailing view of experts is that this situation will not spread to the overall systemic risk of the financial sector, including US banks." “The domestic financial market is different from the SVB and business model in the US. Rather, this situation could act as a pressure on the US Fed to limit interest rate hikes, so this could be a positive,” he said.

The 10-year yield on U.S. Treasury bonds plummeted from 3.69% to 3.91% on the 9th, showing sharp movements in the bond market and predicting a bank run.