After the collapse and control of the Silicon Valley Bank by the US authorities, the First Citizens Bank is now taking over the business.
After its collapse, the American Silicon Valley Bank (SVB) is taken over by the First Citizens Bank. This was announced by the US deposit insurance FDIC on Monday. First Citizens Bank will take assets in the form of deposits and loans. Other assets, primarily securities, remain under the control of the FDIC, it was further disclosed.
On March 10, the money house SVB, which specializes in start-up financing, came under state control. The day before, US crypto bank Silvergate Capital’s voluntary resolution had sent shockwaves through parts of the financial sector. Other small financial institutions also stumbled, the New York Signature Bank collapsed completely.
Since then, the crisis has developed into a banking tremor that is putting pressure on the share prices of banks around the world. The escalation led to an emergency sale by Credit Suisse to UBS. This was followed by another sell-off in European financial stocks last Friday. In addition to many top European politicians, US President Joe Biden also tried to ease the situation at the weekend in view of the turbulence in the banking sector.
How did the Silicon Valley Bank collapse?
Silicon Valley Bank built its business on managing capital raised from startups in funding rounds. From these deposits, the institute bought billions of dollars in US Treasury bonds and other securities, such as mortgage-backed securities (MBS), which had slightly better interest rates than the ones the bank used to lure its customers. Since there is normally no interest on the market, the companies were able to increase the money.
But then came the turnaround in interest rates. Because investors quickly invested less money in startups, the flow of money at the SVB dried up. And since, at the same time, the startups themselves needed even more money to become profitable — a necessity to regain investor interest — the outflow was much larger than expected. Assets have shrunk by as much as $25 billion each quarter since the first quarter of 2022, bank records show.