US Banking Industry in Crisis as Crypto-Friendly Bank Silvergate Goes Under and SVB Financial Scrambles for Funds
On March 9, the stocks of US banks plunged in unison due to the voluntary liquidation of Silvergate, a crypto-friendly bank, and the urgent fundraising of SVB Financial, a Silicon Valley startup-focused bank. The situation has caused a sense of crisis throughout the banking industry.
SVB Financial announced a $2.25 billion fundraising plan on March 8 to handle losses of nearly $1.8 billion, which it plans to address through external funding and securities sales. SVB primarily deals with startups and venture capital firms and cited the expectation of sustained high interest rates and pressure on public and private markets as reasons for the cash shortfall.
The high-interest rate policy of the Federal Reserve is putting pressure on financially challenged venture capital firms, and this impact is affecting banks as well. SVB Financial CEO Greg Becker stated, “We want to help you the way we helped during times of challenge. We have emergency liquidity, but if everyone says SVB has a problem, that could create a danger.”
The voluntary liquidation of Silvergate, which had expanded its business in the cryptocurrency sector, also contributed to the drop in bank stocks.
Specialized banks like SVB and Silvergate, which are based in specific regions, experienced a decline in New York stock market prices, with the SPDR Regional Banking ETF dropping 8% and the SPDR Financial Sector ETF declining by approximately 4%.
Large banks also showed weakness, with JP Morgan, Bank of America, and Wells Fargo falling by over 5%.
Bloomberg’s Jonathen Ferro tweeted, “So it seems we’re at the high rates are great for banks until they’re not part of the cycle.”
There is growing concern that banks that deal with vulnerable small and venture capital firms affected by interest rate hikes are shaking, and the risk may spread to large banks as well.
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