Finance – Von Keller Blog https://www.blog.von-keller.org Von Keller News Blog Thu, 16 Mar 2023 20:50:31 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.5 https://www.blog.von-keller.org/wp-content/uploads/2023/03/cropped-favicon-Von-Keller-blog-32x32.png Finance – Von Keller Blog https://www.blog.von-keller.org 32 32 How Joe Biden’s Decisions Prevented Another Major Banking Crisis https://www.blog.von-keller.org/finance/joe-bidens-decisions-prevented-banking-crisis/ Mon, 13 Mar 2023 20:34:06 +0000 https://www.blog.von-keller.org/authors/biden-outlines-consequences-for-bank-executives/

How Joe Biden's Decisions Prevented Another Major Banking Crisis

President Joe Biden addressed the nation to reassure Americans that the banking system is safe after the collapse of Silicon Valley Bank and Signature Bank with plans to prevent a banking disaster.

When the global financial crisis hit in 2008, then-Vice President Joe Biden was thrust into the role of crisis manager. He was tasked with preventing the collapse of the banking system and steering the country through the recession.

Biden’s decisions during that time were crucial in preventing another major banking crisis. He helped craft the laws that regulated the financial sector and protected consumers. He also pushed for stricter rules on Wall Street.


As a result of Biden’s efforts, the banking system is now stronger and more resilient. And the country has avoided another major economic crisis.

Source: CNN Youtube

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]]> Why Did HSBC Buy the British Branch of Silicon Valley Bank? https://www.blog.von-keller.org/finance/hsbc-is-buying-svbs-uk-business-for-just-over-1/ Mon, 13 Mar 2023 20:34:06 +0000 https://www.blog.von-keller.org/authors/hsbc-is-buying-svbs-uk-business-for-just-over-1/

Why Did HSBC Buy the British Branch of Silicon Valley Bank?

Fearing that firms would be unable to access cash on Monday morning, Chancellor Jeremy Hunt, the Prime Minister, the Governor of the Bank of England, HSBC executives, and civil servants held panic stricken talks to find a solution.

UK tech companies who had been told they would fail now feel relieved that HSBC has stepped in to purchase the UK division of the defunct US Silicon Valley Bank (SVB). Consumers and companies who previously were unable to withdraw their money can again do so normally.

The negotiations were facilitated by the government and the Bank of England, who worked all night to assemble the arrangement without using any taxpayer funds.

According to HSBC, the UK arm of the SVB cost merely £1.

The largest failure of a US bank since 2008 occurred on Friday when US regulators shut down Silicon Valley Bank, which specialized in lending to technology companies.
Its demise shocked the tech sector because of the potential effects it could have on businesses. Some companies told the BBC that they risked going out of business if their deposits weren’t safeguarded.

The Bank of England said no other UK banks had been “materially adversely effected” by SVB’s implosion and said the banking system remained “safe, sound, and well capitalised”.

Source Photo: Håkan Dahlström/Flickr

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]]> Silicon Valley Bank Collapses: Could Mean Big Changes for the Banking Industry https://www.blog.von-keller.org/finance/silicon-valley-bank-collapsed/ Mon, 13 Mar 2023 20:34:06 +0000 https://www.blog.von-keller.org/authors/russia-is-likely-using-the-assault-on-bakhmut-to-degrade-wagner-forces-in-order-to-weaken-its-founder-western-analysis-finds/

Silicon Valley Bank Collapses: Could Mean Big Changes for the Banking Industry

The Silicon Valley Bank collapsed with astounding speed and seemingly without warning. The bank had been in business for just over a year when it went bankrupt, leaving countless customers and employees stranded.

What caused the Silicon Valley Bank to fail?

The cause of the Silicon Valley Bank’s collapse is still unknown, but it is likely that the bank was not adequately prepared for the rapidly changing financial landscape. The bank was founded just over a year ago and was quickly overwhelmed by the competition.

This is not the first time a new bank has failed in Silicon Valley. In fact, the region has a long history of banking failures.

Who is this Bank?

Silicon Valley Bank is a regional bank that serves the Silicon Valley area. The bank was founded in 1906 and has since grown to be one of the largest banks in the region. Silicon Valley Bank offers a wide range of services, including personal and commercial banking, mortgage lending, and wealth management. The bank has a strong focus on customer service and offers a variety of financial products and services to its customers. Silicon Valley Bank is a member of the FDIC and has an A+ rating from the Better Business Bureau.

The shocking truth behind its collapse!

SVB experienced an unexpected, abrupt collapse after a two day period in which customers withdrew their deposits in what is termed as a “bank run.”

The roots of SVB’s demise can be traced back to the Federal Reserve’s recent tightening of monetary policy. With their aggressive interest rate hikes, investors have had to pay more when borrowing money. This in turn has increased the burden on tech start-ups who struggle to raise new venture capital funding, and as a result are relying more heavily on deposits held by SVB. These economic factors coupled with rising rates causing a decrease in bond portfolio yields—which were averaging 1.79% last week compared to the 10-year Treasury yield of around 3.9%, according to Reuters—contributed significantly towards the closure of this well-known business.

Several years ago, SVB decided to allocate billions of dollars into US government bonds in an attempt to make money from the near-zero interest rate environment. However, when the Federal Reserve raised rates aggressively in order to tame inflation, this bet backfired. As a result, the value of their bond portfolio dropped and the yield fell below the 10-year Treasury yield. Further compounding the damage done was that startups had to pay higher borrowing costs, resulting in them drawing down on deposits held with SVB for funding operations and growth.

The final trigger for bank customers

SVB’s financial issues stem from prior investments, leading to a deposit run when they announced they were selling securities at a loss, and also issuing $2.25 billion in new shares. This was necessary to make up for the shortfall in their finances.

That sentiment set off panic among customers, who decided remove their money very quickly.

Will this the start of the 2023 bank crisis?

There is a lot of talk about the possibility of a bank crisis in the near future. This is because the world economy is slowly recovering from covid-19, but there are still a lot of issues that need to be addressed. One issue that is causing a lot of concern is the fact that there are a lot of loans that are not being repaid. This is causing a lot of banks to go into debt, and this is leading to a lot of problems.

If the bank crisis in the 2023 does happen, it will be a huge problem. This is because a lot of people will lose a lot of money, and the world economy will be slowed down even more.

In support of U.S. businesses and households, the Federal Reserve Board announced Sunday it will make additional funds available to eligible depository institutions. This is part of an effort to further secure deposits and maintain the reliability of banking systems in providing money and credit to consumers. The goal is to give banks the flexibility they need in servicing their customers’ monetary needs.

Source: CNN, Federal Reserve Press Release

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]]> The President’s Words on the Importance of safeguarding our banking system https://www.blog.von-keller.org/finance/safeguarding-our-banking-system/ Mon, 13 Mar 2023 20:34:05 +0000 https://www.blog.von-keller.org/authors/biden-the-american-banking-system-is-safe/

The President's Words on the Importance of safeguarding our banking system

U.S. President Joe Biden sought to reassure banking customers and markets after two U.S. banks collapsed, forcing the government to step in.

“Americans can have confidence that the banking system is safe,” Mr. Biden said in a statement.

“Your deposits will be there when you need them.”

The Presidents’s comments come after the failure of creditors to agree on a plan to rescue struggling German lender Deutsche Bank.

Deutsche Bank is one of the world’s biggest banks and its collapse would have had far-reaching consequences.

The U.S. government was forced to step in and provide temporary funding to German lender Commerzbank last week to help it weather the crisis.

Source: Reuter Youtube Channel

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]]> Notwithstanding the President’s promises, the bankruptcy of SVB causes fear on Wall Street https://www.blog.von-keller.org/finance/stock-fall-after-svb-collapse/ Mon, 13 Mar 2023 20:34:05 +0000 https://www.blog.von-keller.org/authors/wall-street-pummels-regional-banks-despite-bidens-assurances/

Notwithstanding the President's promises, the bankruptcy of SVB causes fear on Wall Street

Due to concerns over what would be the next institution to fail in the wake of the second- and third-largest bank failures in American history, bank stocks slumped on Monday. But, a large portion of the rest of the market increased on hopes that the bloodshed would persuade the Federal Reserve to ease up on its economy-rattling interest rate increases.

Despite the Biden administration’s emergency measures to preserve consumer accounts, Wall Street’s faith in regional banks remained fragile on Monday.

Trade was suspended at a few local banks.

Regional banks have assets between $10 billion and $100 billion, making them larger than community banks but smaller than national banks. While a regional bank can have branches in several states and has a history in each community, some local banks are only able to serve one particular community.

SVB focused in offering banking services to the biotechnology. SVB witnessed a considerable growth in deposits (+86% in 2021) during the pandemic, as California’s tech sector experienced a boom, and heavily invested in Treasury bonds and mortgage-backed securities.

SVB was exposed to interest rate increases in two ways because of its business model:

First, its IT customer base has been particularly badly hurt by increasing borrowing rates. A decrease in venture capital funding and an increase in cash burn among tech companies were the results. As a result, assets belonging to SVB clients were lost in 2022.

Should we demand for immediate rate reductions

Is it time for the Fed to cut the rates rather than the continual rise we observed in the last quarter. By slowing the economy, higher interest rates can reduce inflation, but they also increase the likelihood of a future recession. They also affected the pricing of bonds and stocks that were already in investors’ portfolios.

Because Government bonds are among the safest investments on the planet, banks frequently lodge their capital in them, which has damaged their investment portfolios.

International Banking Reverberations

International Banking Reverberations

The California bank’s British subsidiary, Silicon Valley Bank UK Ltd., was sold in London by the government for the nominal price of one British pound.

All Silicon Valley Bank customers will be safeguarded and have access to their money, according to statements made on Sunday by the U.S. Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp. Additionally, the three institutions announced steps to safeguard the bank’s clients and stop further bank robberies.

After the fall many banks in 2008 regulators shut down Silicon Valley Bank on Friday as investors withdrew billions of dollars from the institution in hours. The third-largest bank failure in American history.

Source: CBS

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Wall Street Building
]]> Here’s how Silicon Valley Bank collapsed in 48 hours https://www.blog.von-keller.org/finance/heres-how-silicon-valley-bank-collapsed-in-48-hours/ Mon, 13 Mar 2023 20:34:05 +0000 https://www.blog.von-keller.org/authors/heres-how-silicon-valley-bank-collapsed-in-48-hours/

Here's How Silicon Valley Bank Collapsed in 48 hours

Last week, the go-to bank for American IT startups abruptly collapsed, placing its influential custom and investors in a precarious situation.

Federal authorities took control of Silicon Valley Bank after it collapsed Friday morning due to an unexpected bank run and capital problem.

It was the biggest failure of a US bank since Washington Mutual in 2008.

Here is what we know about the bank’s collapse and potential future steps.

What is SVB?

SVB, which was founded in 1983, specialized in banking for technology startups. It provided funding for nearly half of venture-backed technology and health-care companies in the United States.

While relatively unknown outside of Silicon Valley, SVB was one of the top 20 American commercial banks at the end of last year, with $209 billion in total assets, according to the FDIC.

How did SVB back Fall?

In short, SVB experienced a classic bank run.  The longer version is a little trickier.

Higher interest rates eroded the value of long-term bonds purchased by SVB and other banks during the ultra-low, near-zero interest rate era. The average yield on SVB’s $21 billion bond portfolio was 1.79%; the current 10-year Treasury yield is around 3.9%.

The Federal Reserve, for one, began raising interest rates a year ago to combat inflation after the covid-19 event. It ws an aggressive move, and higher borrowing costs sapped the momentum of tech stocks, which had benefited SVB.

At the same time, venture capital began to stagnate, pushing startups to rely on SVB funds. So the bank was sitting on a glacier of unquantifiable bond losses at the same time that customer withdrawals were increasing.

What was the last straw?

SVB announced on Wednesday that it had sold a number of securities at a loss and that it would also sell $2.25 billion in new shares to shore up its balance sheet. This reportedly created chaos among key investment firms, who notified companies to remove their funds from the bank.

Between Thursday and Friday, 48 hours, trading in SVB shares was halted, and it had relinquished efforts to quickly raise capital or find a buyer. California regulators stepped in, shutting down the bank and placing it under the supervision of the Federal Deposit Insurance Corporation.

SVB may still find a buyer, though this is far from certain.

The FDIC typically sells a failed bank’s assets to other banks, using the proceeds to repay depositors whose funds were not insured.

Source:

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]]> Silicon Valley Bank: The Biggest Run on the Banks in History https://www.blog.von-keller.org/finance/biggest-run-on-bank-in-history/ https://www.blog.von-keller.org/finance/biggest-run-on-bank-in-history/#respond Mon, 13 Mar 2023 20:34:05 +0000 https://www.blog.von-keller.org/authors/what-is-a-bank-run/

Silicon Valley: Biggest Run on the Bank in History!

Customers of Silicon Valley Bank (SVB), a commercial bank headquartered in Santa Clara, California.was the 16th-largest bank in the United States at the time of its failure,  withdrew $42 billion from their accounts on within one day. which is the largest and fastest in history

The classic definition of a bank run is when an excessive number of clients simultaneously withdraw the whole balance of their deposits from a banking institution out of concern that it may be or will be bankrupt. Although many jurisdictions have deposit insurance programs to protect depositors, a customer’s trust in the organizations they deal with may sometimes be outweighed by their incapacity to use their money or a potential loss (beyond insurance coverage).

Bank runs happen when customers panic and everyone tries to get their money out at once. 

No bank in the world could survive that kind of outflow in a single day, especially considering that a comparable exodus of that scale the following day was all but guaranteed. SVB is now a state-mandated ward as a result, and it is frantically trying to sell before Monday.

 

Stockmarket crash of 1929

The October 1929 stock market crash made the American public extremely nervous and vulnerable to rumors of impending financial disaster. Consumer spending and investment began to fall, resulting in a drop in production and employment.

Silicon Valley Bank is now under FDIC control, but they are still open for business. The collapse shocking investors and venture capitalists all over Silicon Valley. Bloomberg’s Priya Anand reports from San Francisco.

 

Bank run of the stock market crash of October 1929.

Source: Bloomberg​

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