America’s Silicon Valley Bank went bankrupt and then Signature Bank went bankrupt and six more banks are on the verge of bankruptcy. Shares of Silicon Valley Bank took a massive hit on March 9th Thursday, with the stock collapsing as much as 60%. In one day, depositors withdrew 42 billion dollars from the bank.
Due to this, US banks lost 100 billion dollars in the stock market in just two days. Now, with Moody’s downgrading First Republic Bank, Zions Bank Corporation, Western Alliance, Bancorp, Comerica Inc., UMB Financial Corp, and Intrust Financial Corporation, these six banks are clearly in bad shape. Discussions have also started that these six banks will fail anytime and the whole world will be pushed towards a crushing recession. To avoid such a situation with First Republican Bank, funding of 30 billion dollars has been announced by the J P Morgan, Citi Group, Bank of America and Wells Fargo by Friday.
The US Fed poured massive liquidity into the market during the pandemic to prop up the economy. Due to which people and businesses had more money than required. This resulted in an increase in bank deposits. Banks invested heavily in US Treasuries and other government debt securities to earn money. SVB built its portfolio of $21 billion with a yield of 1.79% over a 3-year period. An aggressive increase in the Fed Reserve rate on the back of an extraordinary increase in inflation caused bond values to plummet, resulting in a massive loss of $2 billion in interest income for the bank.
The crushing recession that rocked the entire world was last seen fifteen years ago, i.e. in 2008. At that time too, it started with the bankruptcy of banks. Starting with Lehman Brothers, one by one the banks started to fail. The number of employees of Lehman Bank, established in 1847, was more than 25 thousand. Many banks depended on Lehman Brothers, America’s fourth largest bank, so they were also affected and the US economy went into recession. America’s recession spread throughout the world. It took four to five years for the world to come out of this recession.
Economists feel that history is repeating itself after 15 years. The Silicon Valley bank is not as big as Lehman but it has a very large spread. Apart from America, Silicon Valley Bank has offices in Canada, China, India, Hong Kong, Ireland, Israel, UK, Denmark, Sweden, Germany and all European Union countries. Having worked with IT companies for years, the bank had a good understanding of their ecosystem. Now the IT sector of the whole world will be hit by the liquidation of this bank. Startups in India have also taken a huge hit due to this. Because most startups in India had their accounts in Silicon Valley Bank. When the startups are feeling the pull of money, now this money will get stuck for a longer period and their condition will deteriorate.
At the time of this writing, SVB Financial Group is on the brink of bankruptcy, forcing it to seek protection against creditors, and there are signs that public confidence in America’s banking system is once again wavering. As a result, on Friday evening, there were falls in the American stock markets and the Dow Jones index fell by 400 points. Meanwhile, Reserve Bank of India Governor Shashikant Das, speaking at an event in Kochi, warned Indian banks to be cautious.
America is a superpower country. The roots of which are very deep, but even if a branch breaks, the tree shakes. America is facing many crises right now. Britain’s condition is slowly deteriorating. Fuel shortages are causing problems in European countries. For India, it is predicted that India’s economic development will continue. Of course, India has to be careful about what is happening in America and other countries as thousands of startups worth Rs.8200 Crore are stuck in SVB for now which had a great potential to contribute to the country’s economy and such stories must not be repeated.
Author has a rich experience of 10 years of handling and leading various projects. He is an independent freelancer associated with Academic Institutions and Social Organizations. He can be mailed at kalpeshsavan@gmail.com
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