Silicon Valley Bank, an investor's guide: here's what you risk and what you need to do
What happened to Silicon Valley Bank?
Silicon Valley Bank was the bank of the startups that had deposited over 170 billion dollars there. In recent months these companies have gotten into trouble and have started withdrawing money from their bank accounts. Faced with a growing number of drawdowns, SVB had to draw on cash invested in long-dated securities issued by the US government or other reliable borrowers. Problem: the rise in interest rates has made those bonds that offered yields far lower than the bonds placed in recent months lose value. If Svb could have brought them to maturity, no loss would have arisen. The need to sell them immediately to meet withdrawal requests has instead opened a 1.8 billion hole in the bank's balance sheets.
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What do other American banks have to do with it?
The crash has reawakened fears of a financial crisis, similar to the one triggered in 2008 by the bankruptcy of Lehman Brothers. Just a few hours later, Signature Bank also went bankrupt after losing almost 18 billion deposits in just a few hours. The speculations then hit another bank, First Republic Bank, which came to lose more than 60% on Wall Street.
How did the US authorities intervene?
The US government has guaranteed all the bank's deposits. The Federal Reserve has also agreed to lend the necessary funds to other institutions that need them to honor their customers' withdrawal requests. The American president, Joe Biden, said that "the banking system is safe".
Could this also happen in Europe?
European and Italian banks are not as exposed to the technology sector and start-ups. Above all, they are subject to generally more stringent ECB regulations and supervision. In particular, the general manager of ABI Giovanni Sabatini recalled, the Basel agreements provide for two liquidity ratios: the Liquidity coverage ratio and the Net stable funding ratio. The first ensures that the bank has a buffer of highly liquid assets to cope with stress for at least thirty days. For Italian banks, this index is now over 160%. The second aims to ensure a balance between the duration of the bank's funding sources and its uses. This second index for Italian banks is around 140%.
Are current account deposits safe?
Up to 100 thousand euros yes. If an Italian bank goes bankrupt, the Italian Interbank Deposit Protection Fund (FITD) intervenes, launching a restructuring process and guaranteeing savers' deposits up to 100,000 euros. If the institution is considered systemic, the Bank of Italy and the ECB can decide to save it with public intervention.