Silicon Valley Bank: Why did the American bank fail?

Since the financial crisis of 2008, Silicon Valley Bank has been the largest bank to fail in the United States, and its failure on Friday briefly raised fears of another financial collapse.

The authorities worked nonstop on the weekend to prevent a contagion effect on the rest of the banking industry.

As such, on Sunday afternoon, it was announced that all depositors could withdraw their money, and at the same time, a second bank’s closure was announced: Signature.

Two banks were forced to cease operations after falling into disarray in just three days.

Joseph Biden, the president of the United States, reaffirmed on Monday that the nation’s financial system is intact, attempting to restore calm following the sudden and unexpected collapse of the banking sector’s institutions.

«Deposits will be there when you need them» he declared, adding that the bank directors should be fired and that the money that is returned to the clients won’t be paid for by the contributors.

Americans must «have the confidence that our financial system is intact,» according to Biden. According to the mandate, SVB customers can access their money as of this Monday.

The US senator also spoke to investors, telling them they would not be protected: «They took on a risk, and when that risk does not materialize, the investors lose their money. As thus, capitalism functions «.

Experts agree that the government tried to fool itself to avoid the public outrage brought on by the taxpayer-funded Wall Street financial rescues of 2008.

What caused it to explode?

Two major factors that have hurt the bank over the past year are the decline in the value of technological company stock and the aggressive increase in interest rate types in the United States to combat inflation.

With client deposits over the previous two years, the bank purchased a significant number of fixed-income investments, which are typically regarded as safe bets.

Yet, as the types of interest rise, the prices of the bonuses fall, which causes SVB’s investment to lose value.

If they had been able to maintain those benefits for many years, this would not have had more serious consequences. Yet, the current economic climate has caused many customers to withdraw their funds due to a lack of liquidity.