The banking sector in the United States was shaken again this Thursday, making us remember the episode of 2008, when it was the epicenter of the financial earthquake that affected the entire planet.
Silvergate Bank Capital has collapsed, its bankruptcy is not the size of Lehman Brothers, there is not even a point of comparison, but it is a reminder of how fragile banking institutions are today and it also becomes the first victim of the banking system American after the implosion of crypto assets. In fact, it is a direct victim of the “crypto winter”. But, what is the history of this bank that until Wednesday was not on the list of large corporations in the system and that yesterday was the cause of the collapse on Wall Street and surely much will be written after its bankruptcy?
Silvergate Capital, victim of the “crypto winter”
Silvergate Capital is an entity founded in 1988, originally born as a savings and loan institution and concentrated its operations in the state of California, although it has branches throughout the United States. In the middle of the following decade, it was reorganized into a community bank and it was a decade later, specifically in 2013, when it made its foray into the universe of digital assets. In those years, its managers justified the measure by pointing out that the bank was refocusing its business on the new economy and intended to serve bitcoin and blockchain companies.
But, this Wednesday it announced the voluntary liquidation of its operations and the liquidation of billions of dollars in assets from Silvergate Bank, including full refund of all deposits.
Last week it had launched its first alert when it shut down a key crypto-active payment network. In the announcement of his bankruptcythe bank’s executives said they considered an orderly cessation of operations and a voluntary liquidation of the entity to be the best way forward.; but apparently in the markets they thought differently, especially because after hours of negotiations with the officials of the Federal Deposit Insurance Corporation (FDIC) and faced with the impossibility of obtaining liquidity to stop the outflow of funds, various partners of the bank, including Coinbase Global, severed financial relations with the firm. That means that Silvergate Bank Capital is alone in this bankruptcy process.
In reality, the bank was a giant of crypto assets, or at least it managed resources that were not insignificant for any bank, even traditional and commercial ones. According to the most recent report of him, the entity became the second largest financial firm specializing in cryptocurrencies in the United States and it had up to 11.9 billion dollars in deposits, although at the time of the collapse it is not known for sure how much it had in its coffers; the bank has said it is committed to a full refund for its customers, but has not said how it will do so.
Silvergate Capital started accepting crypto deposits in 2013, just at a time when traditional financial institutions were refusing to enter this market. Five years later, he introduced a crypto payment platform that allowed his clients to exchange digital currencies.
Although bitcoin managed to stay above $20,000, the collapse of Silvergate meant a drop of almost 8 percent and in the afternoon session of the markets it barely respected that support, it is likely that by the time you read this bitcoin will have dropped below $20 thousand. But Silvergate Capital was a case, because Wall Street was rocked yesterday by yet another.
SVB Financial Group, in liquidity problems
SVB, a prestigious entity with a large clientele in Silicon Valley, faces serious liquidity problems, the institution itself recognized this when announcing a sale of shares for 1.750 million dollars, with the objective of reinforcing its capital levels since it faces a severe decrease in deposits from its clients. The bank is linked to technology companies and suffers from the decline in operations by technology venture capital.
The bank operates nearly half of the VC-backed start-ups in the United States, as well as about 45 percent of the VC-backed healthcare and technology companies that went public last year.
But precisely these sectors are the ones that have been most devastated by the increases in interest rates applied to combat inflation, a situation that sinks valuations and forces companies to seek liquidity.
SVB tries to keep the situation under control and announced some measures to prove it. He said, for example, who had sold about $21 billion in securities from his portfoliowith a plan to reinvest the proceeds, resulting in a $1.8 billion after-tax loss for the first quarter.
In addition, announced offers for $1.25 billion of its common shares and $500 million of securities representing convertible preferred shares. In addition, General Atlantic committed to purchase 500 million shares of common stock, for a total amount raised of $2.25 billion. Still, investors have fears about its liquidity problems.
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Domino effect
The risks in the US banking system apparently increased, or at least the fears, yesterday there was a “domino effect” in bank actions on Wall Street.
Shares of San Francisco’s First Republic plunged 16 percent; the SPDR S&P regional banking fund fell more than 7 percent to its lowest level since January 2021, while the main S&P banking index also fell 7 percent.
And other large institutions in the US banking system were not spared either. In yesterday’s session JPMorgan, Bank of America and Wells Fargo fell more than 5 percent on the stock market.
In case something was missing, the alerts sound again in the US banking system.
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