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SVB Bankruptcy Sparks Fear of 'Second Lehman Moment' in Financial Markets

The Silicon Valley Bank (SVB), which has total assets of USD 209 billion, went bankrupt. The bankruptcy was the second-largest bank in U.S. history. As SVB has been a "money source" for U.S. startup companies, concerns are growing that customer companies will go bankrupt. There is tension in the global financial markets. On the 9th and 10th, the market capitalization of U.S. bank stocks fell by more than $100 billion, and the price of Bitcoin collapsed below $20,000. There are also signs that the impact will spread to startups around the world as business suspension occurs at SVB overseas branches, including the UK.


According to the Wall Street Journal (WSJ) and Bloomberg News, on the 10th, the California Financial Protection Innovation Bureau closed SVB due to insufficient liquidity and insolvency. The Santa Clara Deposit Insurance National Bank (DINB), a corporation established by the U.S. Federal Deposit Insurance Corporation (FDIC), said it will transfer all of SVB's existing deposits and sell SVB's assets.


SVB's bankruptcy is the largest since Washington Mutual Bank (asset of $307 billion), which collapsed during the 2008 global financial crisis. SVB, which has been dealing with Silicon Valley startups and IT companies as its main customers, has a total asset of $209 billion at the end of last year. It increased by $93 billion from $116 billion at the end of 2021. Its assets nearly doubled in a year, making it the 16th largest lender in the United States. This was the result of the booming IT industry's money pouring into SVB thanks to the ultra-low interest rate trend and government support that continued during the COVID-19 pandemic. According to SVB, 44% of U.S. tech and healthcare venture companies are customers of SVB.

The repercussions began to spread to financial markets around the world. There are also concerns that if it leads to a series of bankruptcies, the Lehman Brothers crisis, which triggered the 2008 global financial crisis, could be re-enacted. Smartphones are cited as the reason why Silicon Valley Bank (SVB) Bank went bankrupt at a high speed less than two days after the financial crisis erupted.


The Wall Street Journal reported on the 12th that the bank run occurred at a rapid pace as Silicon Valley startup entrepreneurs, SVB's main customers, withdrew a large number of deposits from their smartphones as soon as they heard the news of the crisis.


"When I got off the airport to attend the founder's event in Big Sky, Montana, I saw all my fellow founders tapping their smartphones like crazy," Max Cho, founder of insurance startup "Garbage Cat," said in an interview with WSJ. Witnessing the real-time scene of the bank run.


Cho also added that he tried to transfer most of the company's balance to another account by following his colleagues to the SVB banking app, but the transfer was not made because the money was already tied up.


Depositors who entrusted money to SVB reportedly tried to withdraw 42 billion dollars until the market price when financial institutions closed on the same day. The following day, on the morning of the 10th, the California Financial Protection Innovation Agency closed SVB due to insufficient liquidity and insolvency and appointed the U.S. Federal Deposit Insurance Corporation (FDIC) as bankruptcy trustee.


SVB and its parent company SVB Financial started working in 1983. WSJ analyzed that it took more than 40 years for them to stand tall as major financial institutions in the startup industry, but it took only 36 hours to collapse.


The SVB incident came after the value of deposits and assets, which are key capital of financial institutions, was separated due to the central bank's interest rate hike. In the case of the 2008 financial crisis, it was different from when banks went bankrupt after excessively investing in risky assets such as derivatives, and it was not as serious as then.


WSJ analyzed, "(The spread of news through social networking services (SNS), which were not factors to consider during the 2008 financial crisis, and the seizure response of startup managers worsened the situation." It is explained that the news of a mixture of facts and fiction spread rapidly through SNS and mobile messengers, and the bank run occurred just by opening their smartphone banking app and tapping the number a few times.


Meanwhile, the Joe Biden administration is working hard to sell SVB, which collapsed suddenly. The U.S. government decided to guarantee the full amount of money entrusted by customers to the Silicon Valley Bank (SVB), which was closed earlier in the day, regardless of the insurance limit. As a result, all depositors will have access to the full amount of their deposits from the 13th, and there will be no taxpayer-funded costs related to SVB's losses, the Treasury Department said.

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