Four days that shook the US banking system

The American banking system was rocked by an earthquake that no one could have foreseen. The earthquake, which caused the collapse of three banks, forced the authorities to take drastic measures to reassure customers.

It all started on Wednesday night after the announcement of liquidation Silvergate Banka small regional bank that has become a favorite place for the cryptocurrency community.

A company from La Jolla, California that has suffered a number of setbacks in the crypto universe, especially due to the collapse of the platform. FTXhad to face a wave of withdrawals that prevented it from meeting its obligations.

That same night, another much larger bank, Silicon Valley Bank (SVB)announced that it was also experiencing massive withdrawals of funds.

A favorite of much of the emerging tech sector, BLS suffered from the slowdown of the new economy.

Investment funds are increasingly turning to banks due to difficulties in raising funds, and when it comes to start-ups, they have a chronic need for cash flow to finance their growth.

He BLS it is also under pressure, like the rest of the banks, due to the strong monetary tightening of the Federal Reserve System (Fed, the central bank).

Most of the money the banks ask for is short-term in order to provide long-term loans.

In general, they benefit from the fact that short-term rates are significantly lower than long-term ones. However, the tightening of the Fed’s monetary policy caused the opposite effect and reduced bank spreads.

In careful presentation BLS stressed on Wednesday the strength of its accounts and its relatively low loan-to-deposit ratio.

However, in addition to reducing his deposits, he announced that he had begun a $2,250 million capital increase.

He also revealed that he urgently sold a $21 billion portfolio of financial securities to secure his cash reserves, losing $1,800 million as a result of the transaction.

race against time

This announcement was enough to alert investors and clients, who rushed to return their assets the next day. Only Thursday BLS received orders for withdrawal of funds in the amount of about 42 billion dollars.

Even without being able to meet all requests, as of Thursday evening he already had nearly $1 billion in negative cash flow, a sign that he had transferred more money than was available.

BLS He was also punished in the stock market, where his share fell by 60% per session.

On Friday, the listing of his title was suspended, and immediately after that, the Federal Deposit Insurance Corporation (FDIC) announced that it was taking control of the organization, dying and could not find a buyer.

The main local banks remained relatively unscathed, but a few mid-sized or regional institutions began to feel the effects.

Signature Bank of New York, PacWest of California, or Western Alliance in Phoenix, Arizona lost over 20% on the day.

The fate of the deposits BLSof which only 4% of the total $170 billion is covered by the FDIC Guarantee Facility, which guarantees up to $250,000 per client and per bank.

The tech sector fears a disaster due to the fact that it will not be able to access funds deposited in SVB, but beyond this case, the fear extends to individuals and companies in other sectors.

On Sunday, the Fed, the Treasury Department and the FDIC said they would act so that all customers can withdraw all their money from BLS.

They also announced that SignatureBankThe 21st largest bank in the country to have been interfered with and that its clients will benefit from the same system as clients BLS.

The Fed has offered the loan to other institutions that may need it to cover the withdrawals.

After a race against time, US officials hoped to restore confidence in their banking system before markets open on Monday. (AFP)

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