Silicon Valley bank collapses, FDIC responds swiftly

Silicon Valley bank collapses; Fdic reacts swiftly

Silicon Valley Bank also collapsed Friday morning after Silvergate collapsed. The aforementioned crash came just two days after the second largest financial institution in U.S. history collapsed due to a crisis of capitalism and a bank run.

California regulators have reportedly opted to shut down the tech lender and hand it over to the FDIC. The FDIC currently acts as overlord for banks, which typically entails selling the bank’s assets to repay its customers, including depositors and creditors.

The FDIC is a well-known independent government agency that regulates financial companies and insures bank deposits. All insured depositors are said to have fully utilized their insured deposits by Monday morning, according to the aforementioned agency. The above-mentioned institutions also added that they will “pay a prepaid dividend to uninsured savers next week”.

The Moments Before Silicon Valley Banks Failed

Silicon Valley bank collapses; Fdic reacts swiftly

Silicon Valley Bank apparently ran into trouble last Wednesday, when SBV announced it would sell $2.25 billion in new shares to strengthen its balance sheet, while also selling some securities at a loss. Major venture capital firms are believed to have panicked over the disclosure, prompting them to pull capital from the bank.

The bank’s shares were seen falling on Thursday in light of the above events, with shares of other banks reported to have followed suit. Then on Friday, it was pointed out that SVB’s stock had stopped moving and that it had abandoned efforts to raise capital or sell said shares. Meanwhile, some other bank stocks were temporarily suspended on Friday, including but not limited to First Republic, PacWest Bancorp and Signature Bank.

FDIC’s Quick Response

Silicon Valley bank collapses; Fdic reacts swiftly

A quick succession of events contributed to the timing of the FDIC acquisition. The aforementioned institutions are known for intervening after the market closes. But, according to Better Markets CEO Dennis M. Kelleher, SVB’s condition is deteriorating rapidly and it can’t last another five hours.

The CEO asserted that the above situation was caused by depositors withdrawing their funds so quickly that the bank failed. He also pointed to traditional bank runs as another factor making intraday shutdowns inevitable. However, there were reports that the Fed’s sharp rise in the previous year was partly responsible for the decline in SVB’s performance.

Source of information: Compiled by 0x Information from COINWIRE.The copyright belongs to the author CoinWire, and shall not be reproduced without permission

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