Banks Bust After SVB Loses
Following crypto bank Silvergate Capital’s announcement to close all operations, another tech-focused financial firm released pitfalls that caused severe market reactions. SVB Financial Group, a tech-focused bank, experienced large decreases in deposits, reporting a $2 billion loss after selling assets. Similar to Silvergate Bank, SVB has struggled with decreases in consumer demand with lower sentiments towards tech, crypto, and unstable assets. Nevertheless, the negative announcement caused SVB’s shares to plunge 60.41%, however, they weren’t the only ones suffering losses due to the news. Shares of banks across the nation lost significant amounts of market capitalization, with the four largest banks losing $52 billion combined on Thursday.
Previously, SVB was a breeding ground for startups, serving to financially back projects that were normally denied by other banks for being too risky. Unfortunately, necessary measures taken by the Federal Reserve have created fiscally-tight environments, which have inevitably caused bank-owned assets like bonds to fall in value. Although this is not inherently an immediate issue, it can become catastrophic if withdrawals of deposits increase, leaving banks with no choice but to realize the losses of these bonds to raise cash. After banks SVB and Silvergate succumbed to this outcome, investors began to fear other big and small banks would do the same. At the end of today’s trading day, banks First Republic, Charles Schwab, Signature, Zions Bancorp, and more were each down over 10%.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
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