The collapse of Silicon Valley Bank in USA
On March 10th the Silicon Valley Bank (SVB), which had $212bn of assets, failed with spectacular speed, making it the biggest lender to collapse since the global financial crisis of 2007-09. Most of SVB's depositors were tech startups with accounts holding well in excess of the $250,000 that is insured by the US federal government. By loading up on long-term bonds, SVB had taken an enormous unhedged bet on interest rates staying low. That bet went wrong, leaving the bank insolvent (or near enough). The fact that shareholders have been wiped out and bondholders will take big losses is not a failure of the US financial system. A bad business has been allowed to go bust. Many Indian start-ups also had their money deposited with the bank.
It is what happened next that reveals the flaws in America's banking architecture. SVB probably had enough assets for depositors to have got all or almost all of their money back—but only after a long wait.
Some of the major reasons for the bank failure include, as argued by the market experts an 2018 US law, supported by US Congress and signed by Donald Trump, that undid some of the credit requirements imposed under the Dodd-Frank banking legislation brought in after the 2008 banking crisis, risk management failure - The bank didn't have a chief risk officer (CRO) for some of 2022 and sharp interest rate rises after a decade of ultra-low borrowing costs.
