The collapse of the American banking sector
"We are proud to be the best financial partner in the most challenging times," said the CEO of SVB Financial Group at the Upfront Summit on March 1, a day before his firm received the "Bank of the Year" award at a ceremony in London.
The Federal Deposit Insurance Corporation (FDIC) has announced that the Silicon Valley Bank (SVB), the largest bank to fail in the United States since the financial crisis of 2008, has closed its doors in California.
SVB was a bank that specialized in working with startup companies in Silicon Valley. However, things have not been going well for the bank lately: in early March, the bank sold almost all of its securities and suffered a loss of $1.8 billion after taxes. An attempt to raise $2 billion the next day was unsuccessful, and SVB's shares fell by more than 60 percent, leading to a trading halt on March 10. As a result, the US banking sector was heavily hit, dropping by 6.5 percent on March 9 and 3.5 percent on March 10. SVB hired consultants to explore the possibility of selling the bank.
Recently, we have already experienced a financial crisis that started in 2006 when the mortgage loan market collapsed, leading to the collapse of several major financial institutions, including Bear Steams, Fannie Mae, and Freddie Mac. In 2008, one of the systemically important banks in the United States, Lehman Brothers, declared bankruptcy, which became the largest bankruptcy in American history. This also triggered a crisis in Europe and around the world.
Are we expecting a similar crisis and will there be a domino effect?
US regulators have been writing and speaking about the risks in the crypto industry, and FDIC itself only insures deposits up to $250,000 in banks. The entire venture capital industry is on the brink of a catastrophe.
- Unrealized losses of banks on bonds = $650 billion +/-.
- The risk of the US banking sector = the combined market capitalization of BTC, ETH, and USDT.
- USDC lost its peg to USD (USDT) by 12.9% due to significant backing of the stablecoin being held in that bank.
- The stablecoin DAI is also losing its peg to the dollar due to the fact that its collateral was in USDC.
- Circle has announced that $3.3 billion in reserves supporting its stablecoin are currently held in the bankrupt Silicon Valley Bank (SVB).
- Bank and exchange customers are running to retrieve their deposits.
The domino effect has already started.
If the largest venture investment bank has gone bankrupt, it could have serious consequences for the global economy. This could trigger a chain reaction where other banks and financial institutions begin to encounter problems and find themselves in a difficult situation. This could lead to panic in the markets, a decrease in creditworthiness, and overall instability in the financial system. In such situations, the government may be forced to intervene and take emergency measures to stabilize the situation. And we continue to watch the panic in the markets and act according to our investment strategy.