Silvergate Bank and Silicon Valley Bank’s (SVB) downfall affected the already wrecked economy. Earlier, both financial institutions were hit hard by the sudden collapse of FTX, interest rate hikes, and the COVID-19 pandemic. The crisis affected leading US banks with around $52 billion loss in market value.
On March 8, Silvergate Bank went belly-up and discontinued its crypto payment network. After the Silvergate downfall, the Silicon Valley Bank announced that regulators shut down the firm on Friday. The US financial institutions, stock market and startup industries face tremendous losses. And the fallout of two bank firms impacted the crypto sector.
Silvergate, a crypto-friendly bank founded in 1988, ran into trouble at the end of 2022 amid the FTX bankruptcy crisis in November. Surprisingly, the depositors began to withdraw their money within months, and bank deposits fell to $4 billion from $12 billion in December 2022. In its fourth-quarter report, the crypto bank lost around $1 billion.
At the start of 2023, the bank tried to sell its securities to cover the losses, but an interest rate hike affected it. So the firm decided to take a $4.3 billion loan from the Federal Home Loan Bank (FHLB); later, FHLB demanded Silvergate to return the money. Silvergate Bank “decided to repay all advances outstanding to FHLBank San Francisco in full.”
As luck was not on Silvergate’s side, the firm’s share price fluctuated; as problems choked the bank it announced “voluntary liquidation in an orderly manner” on Thursday. Conversely, Silicon Valley Bank (SVB) and other banks started offering high-interest rates to keep customers even though they still had numerous low-interest loans. Earlier this week, the firm announced that it was seeking funds to cover the losses, scaring investors out of the firm on Friday.
Silicon Valley Bank sold around $21 billion worth of holdings at a loss of $1.8 billion, affecting the US stock market and the crypto industry. CEO of Defiance ETFs Sylvia Jablonski said, “You had a major US bank collapse, the biggest bank failure since 2008, inevitably that’s going to spook the market.”
The stocks of leading US Banks, including Bank of America and Goldman Sachs, dropped on Friday, falling 0.9% and 4.2%, respectively. First Republic dropped 14.8%, and PacWest fell to 37.9%. Meanwhile, JPMorgan market closed at $133.65, up by 2.54% on March 10 at 7.59 pm GMT. On March 10, the S&P 500 was down by 1.45%, and the Nasdaq Composite lost 1.76% to settle at $11,138.
Meanwhile, the crypto market is facing a third consecutive week of losses. The leading cryptocurrencies, Bitcoin and Ethereum, are trading at $20,550 (↑1.83%) and $1,474 (↑2.99%) at press time.
Disclaimer
The views and opinions stated by the author, or any people named in this article, are for informational purposes only and do not establish financial, investment, or other advice. Investing in or trading crypto assets comes with a risk of financial loss.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing
Source: https://www.thecoinrepublic.com/2023/03/12/silvergate-and-silicon-valley-bank-downfall-crushed-the-us-economy/