On Monday, the fragile markets—which had been roiled by concerns of a credit crunch and systemic bank stress—became somewhat calm due to a buyer for Silicon Valley Bank’s deposits and loans.
The Federal Deposit Insurance Corp received equity appreciation rights in First Citizens BancShares Inc’s stock worth up to $500 million in return for buying all of SVB’s loans and deposits, the FDIC stated in a statement.
On Monday, 17 former SVB branches will become First Citizen branches. First Citizen acquires SVB assets worth about $72 billion at a discount of $16.5 billion, while the FDIC anticipates that SVB’s failure would cost the deposit insurance fund about $20 billion.
The deal has provided markets with some respite as this past weekend was the first in several weeks without news of new banking crises, rescue deals, or emergency from authorities to boost confidence.
“You sweep Silicon Valley off to another buyer, which is good, but the bigger issue is guaranteeing deposits at all those other (regional) banks,” stated IG Markets analyst Tony Sycamore in Sydney.
“It’s a little bit of calm before the next storm.”
The end of the previous week saw flashing signs of financial market stress, with Germany ‘s biggest lender Deutsche Bank in the crosshairs. Its shares fell 8.5% on Friday, and the cost of insuring its bonds against default increased sharply.
Asia’s bank shares were mixed on Monday, maintaining stability in Australia and Tokyo but sliding in Hong Kong, where shares of Standard Chartered fell 4%.
S&P 500 futures increased by 0.5%, while European futures increased by 1%.
The SVB collapse, which occurred a little more than two weeks ago, has had an impact across the world. US depositors have been moving to larger cousins from smaller cousins, and last week, the loss of confidence forced Credit Suisse to join rival UBS.
Investors are on edge about what will happen next as the Stoxx index of European bank shares is down more than 18% and the KBW regional bank index in the US is down 21% in March.
In an interview that was posted on the bank’s website, Australia and New Zealand Banking Group Chief Executive Shayne Elliott stated that the crisis was “it’s clearly not over” and warned that it would worsen into a more serious financial crisis.
“I don’t think you can sit here and say, ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal,’” Elliott said. “These things tend to roll through over a long period of time.”
Questions have been raised about whether major central banks will continue to pursue aggressive interest rate hikes to control inflation and whether tightened lending will hurt the global economy in light of the sudden increase in tensions for banks.
Credit default swaps, or the price of insurance against defaults, are unreasonably high in Europe and bank bonds are under pressure. Data from S&P Global Market Intelligence showed that on Friday, the five-year CDS at Deutsche Bank reached its highest level since late 2018.
The focus is on depositors’ confidence in regional lenders, which could be helped by an SVB sale. In the US, where flows into money market funds have increased by more than $300 billion in the past month to a record high of $5.1 trillion, this confidence is on the rise.
After looking for a purchaser for several weeks and the FDIC asking separate offers for SVB Private and SVB, the SBV sale finally happened.
The FDIC still has securities available for sale worth about $90 billion, it said.
Silicon Valley Bank’s Failure
On March 10, one of the most prominent lenders in the field of technology start-ups collapsed, requiring action from the US government.
A Rapid Fall Silicon Valley Bank, which was struggling under the weight of regretful decisions and anxious customers, became the biggest U.S. bank to fail since the 2008 financial crisis. Here is how its collapse played out and why the industry’s problems might still not be resolved.
The Aftermath: The parent firm of Silicon Valley Bank as well as other local banks, like Signature Bank in New York, have already felt the effects of the collapse. Fears that they might suffer a similar fate have put particular pressure on midsize banks like Pacific Western.
Commercial Real Estate: The banking crisis is having an impact on the lending market for commercial real estate amid fears that banks’ concern will slow down growth and increase the likelihood of a recession.
Deposit Flight: After the collapse, some businesses started withdrawing their money from banks and depositing it with the biggest ones. Industry representatives, bank executives, and regulators are attempting to convince those depositors to stop.
Financial Requirements: The failure of Silicon Valley Bank and Signature was a result of the financial requirements that are currently under investigation. During the economic crisis, Barney Frank, one of those responsible for the rules’ development, explains why he later supported their relaxation.
