Silicon Valley Bank (SVB) has been in the spotlight after its collapse prompted the US Federal Deposit Insurance Corporation (FDIC) to close the bank on Friday. It was the biggest US bank failure since 2008, and several alleged catalysts have been pointed out. Some believe that venture capitalists caused a run on the banks, while others blame rate hikes by the US Federal Reserve. Economist and gold fanatic Peter Schiff said on Friday that the US banking system would experience more problems in the future. He and several speculators believe that these financial institutions have mountains of long-term Treasury bonds.
Calls for SVB intervention as market watchers predict further US financial collapse.
Over the past week, two US banking institutions, Silvergate Bank and Silicon Valley Bank (SVB), have failed. SVB’s collapse was the biggest bank failure since Washington Mutual (Wamu) in 2008, which was blamed on expanding branches too quickly and holding massive amounts of subprime mortgages lent to so-called unqualified buyers.
Before its collapse, Wamu had $188.3 billion in deposits, while SVB is estimated to have lost around $175.4 billion in deposits. However, while SVB’s deposits at the end of December 2022 were $175.4 billion, clients tried to remove $42 billion Thursday only. It is safe to say that SVB’s demise was much faster than Wamu’s collapse in late 2008.
Just days before its collapse, SVB tried to strengthen its balance sheet by announcing the need to raise $2.25 billion. The bank also sold its portfolio of available-for-sale (AFS) bonds for $21 billion, resulting in a loss of $1.8 billion on the sale. SVB is well known for banking tech startups and venture capital (VC) money, and some market watchers believe these clients sparked a run on the bank.
“This was a hysteria-induced bank run caused by venture capitalists,” saying Ryan Falvey, a fintech investor at Restive Ventures, in an interview with CNBC on Friday. “This is going to be remembered as one of the last cases of an industry cutting off its nose to annoy its face,” he added.
Other analysts and market observers blame the illogical inverted yield curve that long-term and short-term treasury bonds are facing todayas well as the US Federal Reserve. rate hikes. Soona Amhaz, Founder and Managing Partner of Volt Capital, saying: “The open secret is that technically most US banks are bankrupt right now as they are all sitting on long duration Treasuries that are under water in a rate environment interest rate of 4%”.
Economist and gold fanatic Peter Schiff shares a similar vision to Amhaz’s, expecting a much bigger financial collapse in the United States. “The US banking system is on the brink of a much bigger collapse than it was in 2008. Banks hold long-term paper at extremely low interest rates,” Schiff fixed. He continued:
They cannot compete with short-term Treasuries. Massive withdrawals by depositors seeking higher returns will result in a wave of bank failures.
Craft Ventures executive David Sacks took to Twitter and asked Powell to intervene and prevent a possible contagion. Where is Powell? Where is Yelen? Stop this crisis NOW”, Sacks tweeted. “Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do it before the opening on Monday, or there will be contagion and the crisis will spread”.
Billionaire and Galaxy Digital founder Mike Novogratz also weighed in, expressing surprise that the Fed would allow depositors to lose money at Silicon Valley Bank. “Are all banks going to be treated like hedge funds? It seems like a policy mistake”, Novogratz fixed. Erik Voorhees, founder of Shapeshift ridiculed the Fed’s call for intervention on Twitter, declaring: “Fiat is fragile.”
The SVB issues have impacted the crypto economy, particularly the stablecoin economy backed by fiat reserves. Circle revealed which had $3.3 billion of cash backing the USD currency (USDC) trapped in the bank, causing USDC to de-peg from the US dollar peg. As of 10:30 a.m. on March 11, 2023, USDC is trading for $0.912 per unit. This unpegging has also led to five other stablecoins losing their pegs. Also, on Saturday, Coinbase, Binance and Crypto.com temporarily USDC operations and conversions suspended.
What do you think of the opinions around the failure of SVB? Share your thoughts in the comments section below.
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