Both the corporate world and the cryptocurrency world were hit hard by the sudden collapse of US bank Silicon Valley Bank (SVB) on Friday. Although the US government has stepped in, bought out SVB, and guarantees all assets up to $250,000, the lion’s share of assets at the bank are much higher than that amount. For example, the bank has done a lot of business with tech start-ups, an industry that traditionally involves a lot of money.
It was a classic bank run that bankrupted SVB. In recent years, the bank had invested heavily in government bonds, but due to the deteriorating economic situation, many of the bank’s customers wanted more money. Dilemma for the SVB: If the bank sold the bonds early, the bank received significantly less money thanks to the interest rate increase. The bank decided to raise $2.25 billion worth of additional capital in a stock issue, but that announcement led to major turmoil among customers.
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The bank run was a fact on Friday as customers sought to withdraw $42 billion from their accounts. The rest is history: US authorities intervened, claims of up to $250,000 or higher are still being paid, depending on the sale of SVB or parts of it.
Hard blow to technology
The bank has done a lot of business with tech companies, who are now seeing their money go up in smoke. Like Roku, a maker of smart boxes that allow viewers to watch streaming services. According to Roku, the company has a lot of cash in its account with SVB, more than a quarter of all cash the company had. Roku says he doesn’t know how much money he would see again, but he indicated he still had enough money to last a year. Other tech companies are also reporting difficulties.
Crypto
The USD Coin cryptocurrency also landed in severe weather conditions. USD Coin’s parent company Cicle said it has deposited $3.3 billion in funds with SVB. That money is critical to Circle, it is the ‘gold’ with which it guarantees the value of USD Coin. USD Coin is a so-called stablecoin, a cryptocurrency whose value is guaranteed by a regular currency equivalent. Circle therefore had to abandon its peg to the dollar, the value of the USD coin thus collapsing from 1 dollar to 0.89 cents on the dollar. Several cryptocurrency exchanges such as Binance and BlockFi have stopped trading the coin. The USD coin was worth $36 billion before the issuance.
Meanwhile, the UK regulator has announced that it will close the UK branch of SVB. The UK branch can no longer meet its payment obligations without the support of the parent company. UK account holders will be reimbursed funds of up to £85,000 according to local rules or £170,000 for joint accounts.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
