Silicon Valley Bank, the technology bank that shook the entire sector

American bank Silicon Valley Bankunder the control of the US authorities since this Friday due to “insolvency”, is an institution closely associated with the field technologies suffered from the decline of this sector.

The California Department of Financial Protection and Innovation (DFPI) has closed BLSbased in that state and has named the Federal Deposit Insurance Corporation (FDIC) as the depository of the bank’s funds, the federal agency said Friday.

DFPI “captured Silicon Valley Bankciting inadequate liquidity and insolvency,” the California agency said in a statement.

What is BLS?

He Silicon Valley Bank (BLS) is a California bank specializing in the technology sector and working primarily with funds that invest in companies that are not listed on the exchange.

Little known to the general public, it is the 16th largest US bank by assets.

The firm, which operates in the US, Europe, Asia and Israel, offered startups financial services ranging from simple bank accounts to capitalization advice, among other things.

What was the troubled bank looking for?

The matrix of this bank, BLS The Financial Group announced on Wednesday that it will try to raise $2.25 billion in new funds.

The group quickly sold a $21 billion portfolio of financial titles for an estimated loss of $1,800 million.

BLS He sought to bolster his finances, weakened by the departure of clients, until a statement from federal and state authorities this Friday.

In accordance with Wall Street Magazinewhich cites sources close to the banking sector, investment funds have advised companies to withdraw their money from BLS and, in response, the bank’s CEO on Thursday urged his clients “not to withdraw their deposits and not to spread fear or panic.”

Friday morning share price BLS It was suspended on the New York Stock Exchange pending a report from the company after its titles fell 60% on Thursday and declined more than 60% on electronic exchanges ahead of the reopening.

According to the Economic Channel CNBCthe bank was unable to obtain the necessary capital and negotiated its sale to another bank.

The bank’s 17 branches will reopen on Monday under the supervision of a new organization specifically created by the FDIC to manage the institution’s operations.

Why is SVB in trouble?

Closely associated with technology companies, BLS suffers from a deteriorating sector: A sharp increase in interest rates in the United States, which affects a sector heavily dependent on funding for growth, combined with semiconductor supply difficulties and weak investor appetite for technology values, mark the end of the post-pandemic technology euphoria.

The market capitalization of tech companies collapsed in 2022, and announcements of massive layoffs among Silicon Valley firms have multiplied for months.

The increase in interest rates authorized by the Federal Reserve (the Fed, the central bank) also affects banking institutions.

Banks borrow money in the short term to lend in the medium to long term, a model that hurts their prospects in the context of high rates.

Why does technology suffer?

An individual bank’s troubles could affect investor confidence in the sector around the world.

Banks are interdependent, as the financial crisis of 2008-2009 and the failure of Lehman Brothers showed.

The industry has always been under the threat of bank runs, a chain reaction that starts with customer runs until the banks can respond.

To meet the demand for cash, the bank has no choice but to raise money or quickly transfer assets, often incurring costs or losses and exacerbating its hardship.

At the end of 2022, the bank had $209 billion in assets and about $175.4 billion in deposits, according to authorities. (AFP)

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