After the collapse of SVB Silicon Valley Bank...

2023年3月12日

The sequence of events leading up to the collapse of SVB Silicon Valley Bank is as follows:

SVB Silicon Valley Bank was one of the top 20 banks in the United States, with over 40 years of operation and total assets of $211.8 billion as of the end of 2022. As its name suggests, the bank primarily served technology startups and employees of large companies in Silicon Valley, and was the bank with the most deposits in the area.

On Thursday, March 9th, SVB Silicon Valley Bank announced a liquidity crisis. The stock price of its parent company, SVB Financial Group, plummeted by 60%, causing a sell-off in bank stocks and a simultaneous decline in the three major U.S. stock indices.

As news of the crisis spread, more and more institutional and high-net-worth clients rushed to withdraw their funds, causing a bank run that fueled panic and accelerated the bank's bankruptcy process.

In short, the bank's collapse was due to a combination of factors: taking in deposits at low interest rates, investing heavily in mortgage-backed securities (MBS), facing short-term liquidity constraints, selling MBS at a loss to stop the bleeding, and triggering a panic.

The SVB Silicon Valley Bank incident is directly related to the Federal Reserve's monetary policy and bank liquidity management. In response to the global pandemic in 2020, the Fed implemented unlimited quantitative easing (QE) and lowered interest rates to near 0%. Over the next two years, U.S. tech companies initiated a wave of share buybacks, and businesses took advantage of the low interest rates to raise large amounts of capital, which SVB absorbed in the form of deposits.

The bank used a significant portion of these deposits to engage in relative value trades, primarily in various types of U.S. bonds. More than 65% of SVB's deposits were invested in MBS, which was normally a safe practice as long as the securities were held until maturity. However, the problem arose when SVB over-invested in MBS and the Fed began to shift towards raising interest rates.

The Fed's aggressive interest rate hikes drastically changed the macroeconomic environment, pushing rates higher. Startups in Silicon Valley were no longer able to spend as lavishly, and there were more layoffs and closures. As interest rates rose, the interest paid to depositors also increased, putting pressure on the bank's short-term liquidity.

SVB had to sell its MBS holdings to raise cash, but by this time, market rates had risen from 0% to nearly 5% for two-year yields, causing the value of assets to plummet. SVB sold $21 billion worth of assets at a loss of $1.8 billion.

While SVB could have absorbed the loss of $1.8 billion, the bank still held more than $1 trillion in MBS, and a run on these securities could result in a loss of $15 billion, making SVB insolvent. Investors panicked in anticipation of this scenario.

Event impact
1.SVB announces bankruptcy without warning.
After panic spread, Silicon Valley Bank experienced a run on withdrawals of $420, causing an immediate liquidity crisis. The stock price of SVB Financial Group plummeted by 60% in a single day, crushing the management team's plan to sell stocks to save the company. The management team lost confidence and declared bankruptcy. Its stock price fell from $700 to $100 in just one year.

2.Chain reaction in stock and cryptocurrency markets.
Investors fear that other banks may also be suffering from the negative impact of the Federal Reserve's aggressive interest rate hikes and high rates, similar to the SVB Silicon Valley Bank incident. The negative sentiment has spread to the US banking industry, which is a core asset of the US stock market. The sell-off of bank stocks is a drag on the US stock market as a whole. At the same time, concerns about financing and liquidity for large tech companies have surfaced.

This event also affected the cryptocurrency market. It is difficult to say that there is no relationship between SVB Silicon Valley Bank and the cryptocurrency industry. Circle, the issuer of the stablecoin USDC, has announced that $3.3 billion in cash is deposited in Silicon Valley Bank, which accounts for approximately 8% of the USDC's $40 billion scale. For cryptocurrency companies that have not yet made an announcement, when will they collapse?

Market reaction
Currently, the SVB Silicon Valley Bank incident has mainly affected the US stock and cryptocurrency markets, with negative market sentiment.

The general decline in US bank stocks dragged down the three major US stock indices, with particular attention paid to the Dow Jones Industrial Average. The Dow Jones has been in a four-month consolidation phase in the 32,500-34,500 range, with a possible "double top" formation. This event has become the most critical factor in the Dow Jones' downward breakthrough. "The longer the accumulation, the faster the release." Going forward, attention should be paid to the Dow Jones' oscillating downward trend, with a target pointing towards the key level of 30,000.

Bitcoin prices fell below support at 22,000, but have since returned to above 20,000. In the short term, it is still necessary to closely monitor this support level. If the support is confirmed to be effective, the target will be 22,000. If the 20,000 support line is breached, it will return to a weak consolidation below 20,000, marking the end of the token's rebound. There is a possibility of further breaking through the new low of 18,000.

As the largest bankruptcy case in the US financial industry since the 2008 financial crisis, this event is not yet sufficient to cause systemic risk in the US financial industry, but local risk developments need to be monitored.

BTCUSDBTCUSDTPERPDJI