Historic weekend for the world economy: Silicon Valley Bank (SVB), the 16th largest banking institution in the United States, had assets worth 209 billion dollars.
However, on Friday, March 10, the bank was intervened and closed by the financial authorities of that country. An event that is already considered the largest bank failure in the United States since 2008.
As a “preventive” measure, the US financial authorities also took the decision to close Signature Bank, an institution specialized in crypto-assets.
As a result of these events, during this weekend the stock exchanges of almost all over the world plummeted, and a sample of this was the Nasdaq, which dropped up to 3.8 percent during this period.
What are the effects of the closure of Silicon Valley Bank?
Silicon Valley Bank played a fundamental role in launching new technological innovation projects, as well as in supporting emerging companies in Silicon Valley and even beyond the borders of its region.
For now, the first to be affected by its closure are the San Francisco startups, because they are left without the support and backing that SVB provided.
However, the most worrying thing is the behavior that is contagious with its closure: due to the failure of this bank, the markets are already speculating about the possible collapse of other banks and this is setting off alarm bells.
The origin of this event was the increase in interest rates that the Federal Reserve began to apply. And since then, understanding the outlook has become a little simpler, because the formula is invariable: when rates rise, bond prices fall.
In the words of Enrique Quintana, columnist for El Financiero, the explanation is simple:
“If there are institutions that have a large amount of bonds on their balance sheet, they may eventually be forced to liquidate at very low prices, as happened with SVB. This converts the losses into losses, which has repercussions in a run and thus explains the bankruptcy of the institution”.
Finally, for this financial specialist and director of various media in Mexico, this event demonstrates the fragility of financial institutions that seemed to be exempt from any risk.