By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News, March 11, 2023
The Silicon Valley Bank went bankrupt in the United States, according to the Associated Press and Reuters. The bankruptcy of such a large bank is the first since the financial crisis of 2008 and might cause a new crisis.
Silicon Valley bank was not a small bank – it was the 16th largest bank in the country, holding US$ 210 billion in assets.
The 16th largest US bank found itself in this situation after depositors began to withdraw their funds amid concerns about the situation in the credit institution. Billions in funds were frozen or potentially lost.
Silicon Valley Bank was primarily involved in lending to the tech startup industry.
This is the second largest bank failure after the collapse of Washington Mutual in 2008. WaMu was seized by regulators in September 2008 and sold to JPMorgan Chase (JPM) for a fire-sale price of $1.9 billion.
Earlier this week, SVB Financial Group, the parent company of Silicon Valley Bank, announced an emergency sale of US Treasuries and mortgage bonds totaling $21 billion from the bank’s portfolio due to a more substantial-than-expected outflow of customer funds from deposits. SVB lost $ 1.8 billion as a result of an emergency sale of securities.
Silicon Valley Bank’s problems are partly due to the aggressive tightening of the U.S. Federal Reserve’s monetary policy, started in March 2022 to fight inflation. Higher interest rates led to a decrease in the value of bonds in banks’ portfolios, but unrealized losses did not necessarily become a problem for financial companies. In the case of SVB, difficulties arose due to the fact that the bank had to sell these assets at a loss to cover the outflow of funds from deposits.
The Bank of England announced in early morning of March 11 it would place Silicon Valley Bank’s U.K. subsidiary into insolvency procedure following the collapse of its parent in the U.S.
British clearing bank The Bank of London is considering a rescue bid for the UK arm of collapsed U.S. bank Silicon Valley Bank (SIVB.O), Sky News reported on Saturday.
Read also : How to invest in gold
U.S. and European government bonds rose in price on Friday amid a general withdrawal of investors from risk after information about the problems of California’s Silicon Valley Bank appeared.
The yield on ten-year US Treasury bonds fell during trading to 3.868% per annum from 3.911% at the close of the previous session, similar in maturity to German bonds – to 2.55% from 2.645%, British – to 3.733% from 3.802%.
Another bank is under scrutiny, amid ,news of the collapse of the Silicon Valley Bank : Credit Suisse.
Credit Suisse shares at trading on the Swiss Stock Exchange (SIX) on Friday, March 10, hit a new historical minimum amid a sell-off in securities of the U.S. banking sector. In the day, Credit Suisse shares fell by 6.1%, to 2.463 Swiss francs (about $ 2.65). At closure the share was at 2.50 CHF, a fell of 4.84% over the day.
This context of banking crisis has boosted gold and silver prices.
Gold prices were hovering between $1,868 and $1,871 per troy ounce on March 10, gaining $37 in one day. Silver prices were traded between $19.88 and $20.90 per ounce (March 10, 2023).
The yellow metal has always been an powerful hedge against inflation because its price rises when the cost of goods and services rises. Gold can effectively store value over time, when paper money such as the dollar or euro loses purchasing power due to inflation. Gold is a resilient asset that resists the erosion of inflation and preserves wealth in the medium and long term.
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© Copyright 2023 – Swann Collins, investor, writer and consultant in international affairs.