The bankruptcy of Silicon Valley Bank was the starting signal for the worst crisis of the US banking sector since 2008 and currently there are four financial institutions that have declared bankruptcy in that country.

The regional bank First Republic Bank, the financial institution dedicated to digital assets Silvergate Bank and the Signature Bank They are the other victims of this avalanche that hits the financial system.

“The misapplication of regulations, high interest rates, inadequate liquidity management, unbalanced assets and liabilities, as well as weak risk management, are some of the reasons that could have caused these collapses,” analysts at the firm Ernst & Young (EY).

Until the end of last year, Silicon Valley Bank (SVB) was the 16th bank in USA given the value of its deposits, valued at 209,026 million dollars according to data from the Federal Reserve (Fed).

On March 9, the alarms of the Federal Deposit Insurance Corporation (FDIC), as savers made massive withdrawals from the Silicon Valley Bankwhich exceeded their reserves and caused a “bank run”.

The problem arose from the beginning of the Covid-19 pandemic, since at first the Fed It cut interest rates to stimulate the economy and avoid the negative effects of the lockdown, artificially injecting liquidity and resulting in an expansion of the technology sector.

On the one hand, US technology companies received extraordinary resources from their investors, which they deposited in the Silicon Valley Bank to use them in the future. On the other hand, it was difficult for the bank to place loans at competitive rates given the great supply of cheap credit.

Given this situation, the institution decided to take assets from fixed rent of different terms, from which they obtained higher returns compared to the loans they could place at that time, always making sure that the maturity of their bonds was equal to that of their obligations.

When the cycle of interest rate hikes started by the Fedthis began to negatively affect the price of fixed income assets in the secondary market, causing an unrealized loss on bonds that were below the reference rate.

“Depositors, in the case of SVB and others, withdrew their deposits for fear of the bank’s bankruptcy, due to the losses incurred in fixed-income assets that would be held until maturity due to the rise in interest rates,” he declared. Manuel Zegbe, a senior analyst at Signum Research.

“Given recent events, the fear of depositors may have increased, so there may be greater outflows of deposits in regional banks,” he added.

On May 1, First Republic Bank’s assets were seized and sold cheap to JP Morgan, an operation that the market did not like and aroused fears of a general crisis throughout the sector.

Similarly to Silicon Valley Bankthe loans granted by First Republic Bank they lost value when the Fed began raising interest rates, necessitating US government intervention.

The Fed offered a quick response after the seizure of its assets, securing client deposits worth up to $250 billion.

However, both executives from Wall Streetas analysts have urged regulators to provide greater protection for bank deposits and consider other support measures, arguing that only strong intervention could stop the banking crisis.

kg