The collapse of Silicon Valley Bank has raised fears of a recurrence of the 2008 financial crisis. Fear of the next global recession was further compounded by the unhealed wounds associated with the coronavirus pandemic and the ongoing war in Ukraine. However, after almost a month since the collapse of SVB, it can be concluded that this time the U. S. financial system has dealt with the March tide of failures of three U. S. banks.
On March 10, 2023, after a bank run, Silicon Valley Bank failed, marking the largest bank failure since 2008. The bank possessed 17 branches, $200 billion in total assets, $180 billion in total deposits, and $70 billion in loans. Most analysts connect the collapse with an extensive bond portfolio caused by higher interest rates. The obstacle appeared after purchasing billions of dollars of longer-maturity treasury and other securities in 2020 and 2021. The Fed's increased interest rate in 2022 and early 2023 has led the bank to losses. However, for a complete understanding of the situation, it is worth mentioning that the bank operated almost entirely in the tech sector, particularly in early venture capital-dependent companies, including cryptocurrency.
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The collapse of the SVB was preceded by the announcement, that relatively small Silvergate Bank, which specialise in serving cryptocurrency industry is planning to wind down its operations and liquidate. Following the failure of SVB Signature Bank, which also operated among crypto companies, was close, undermining an already strained cryptocurrency system. The chain reaction of bank collapses has raised concerns among owners of accounts that exceeded the FDIC insurance maximum of $250,000.
The March banking collapse raises questions about the banking system's health, which experienced major turbulence after 2008. Moreover, SVB and mentioned banks are large enough for their failure to threaten the functioning of the financial system. SVB was a primary example of a "monoline bank" focused on one "innovative" economy sector. The problem is that IT and cryptocurrency currently are not so innovative anymore.
For a better understanding, quoting the name Silicon Valley Bank, "Silicon Valley" here is meant to refer to one of the pillars of the global economy, which is Silicon Valley. However, in recent years, Silicon Valley has lost its monopoly status in global IT innovation to regions such as China's Zhongguancun or Shenzen. Therefore, the potential processes underway in California are cushioned by other regions chasing it in the global race for innovation.
Author:
Szymon Polewka is a student of international relations at the Jagiellonian University in Kraków, specializing in the history of international relations, the Eurasian region, DACHL countries, intercultural relations, and the energy sector. He is currently on a scholarship at the University of Bremen. He has gained experience organizing the 2020 Economic Forum in Karpacz and numerous youth and student associations, such as AIESEC or Koło Naukowe Wyzwań Zielonego Ładu.
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