what are the risks for the tech sector?
The fall of the 16e american bank
This Friday, US authorities declared the bankruptcy of Silicon Valley Bank (SVB), the 16th largest US bank by volume of assets. She specialized in companies and investment funds in the tech sector, and worked with players such as Shopify, Pinterest or Hootsuite.
The bank has borne the brunt of the difficulties experienced by the community in recent months, due in particular to the war in Ukraine and the rise in interest rates. Recently, the Sillicon Valley Bank thus had to face massive withdrawals from its customers, which led to a situation of instability. An announcement from the bank, explaining that it was looking for cash to meet these withdrawals, ended up finishing it, making it lose 60% on the New York Stock Exchange the next day.
There Federal Deposit Insurance Corporation (FDIC), an American public agency, took control of Silicon Valley Bank on Friday. This announcement caused a stir in the tech sector, and in the American economy in general. Indeed, the maximum amount of deposits insured by the FDIC is $250,000 per depositor, a sum much lower than what the majority of customers had entrusted to the bank. According to the SVB, this represents 96% of uncovered deposits. Following this event, other financial institutions found themselves in difficulty, such as Signature Bank, which was also automatically closed by the regulator. In addition, the four largest American banks (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) lost $52 billion on Thursday.
Silicon Valley Bank put up for auction
From then on, the American authorities took the decision to put the bank up for auction. In order to achieve their ambitious goal of finding a buyer before the opening of Asian markets on Monday, the authorities guaranteed that they would authorize the withdrawal of all deposits from the bank, blowing the limit of 250,000 dollars per depositor. The Federal Reserve (or Fed) will thus put on the table 25 billion dollars in order to protect deposits.
At my direction, @SecYellen and my National Economic Council Director worked with banking regulators to address problems at Silicon Valley Bank and Signature Bank.
I’m pleased they reached a solution that protects workers, small businesses, taxpayers, and our financial system. https://t.co/CxcdvLVP6l
— President Biden (@POTUS) March 13, 2023
However, this substantial investment has so far not borne fruit, because the American branch of the bank has not found a buyer at this time. This race recalls that of September 13 and 14, 2008, which aimed to find a buyer at the bank Lehmann Brothers, without success. In addition, the Secretary of State for the Treasury, Janet Yellen, ruled out a rescue of the SVB by injection of public money as was the case in 2008 for many banks. For his part, Joe Biden declared himself “firmly dedicated to holding accountable those responsible for this mess”.
The only glimmer of hope at present: the British branch (Silicon Valley Bank UK) was bought out on Monday morning by HSBC for the symbolic sum of one pound sterling, as part of an agreement guaranteeing the continuity of banking services. This news represents a major relief for the British tech community. Chancellor of the Exchequer Jeremy Hunt said on Sunday: “There is a serious risk to our technology and science sectors, many of which do business with this bank”.