Forbes.com reports that banks are worried about liquidity after the SVB or Silicon Valley Bank’s collapse. The collapse took out a combined dollars 164.8 billion in loans from the Fed or Federal Reserve in the last week. This was according to the Federal Reserve statistics that were released on Thursday. This is topping a record set during the year 2008 financial crisis.
Banks took out dollars 152.85 billion in loans. This was done using the Federal Reserve’s discount window, the central bank’s traditional backstop. It offers loans for up to ninety days. This amount was a tremendous increase from the week before. According to the Wall Street Journal, this was when banks took $ 4.58 billion in loans. According to a Bloomberg analysis of the Fed or Federal Reserve data, the borrowing shattered the last weekly high of dollars 111 billion that was recorded during the year 2008 financial crisis,
Banks further took out another dollar 11.9 billion in loans through the Federal Reserve’s new Bank Term Funding Program. The program was started Sunday, and it offers year-long loan terms. The Fed did not identify the banks taking out loans. However, the nation’s largest banks did not show solvency issues. Joe Biden, the President, said that Americans could hold confidence that the American banking system is safe.
Larger banks are highly regulated, and they control many accounts. The accounts vary in deposits, and regional banks such as Silicon Valley Bank rely on high-balance accounts. This is making them susceptible to bank runs when customers sense trouble.
Can SVB be revived?
Silicon Valley Bank’s rapid collapse in the previous week was in a troubled situation. It was more so when many customers who tried to pull their money out of SVB roiled the financial industry. For example, the New York-based Signature Bank failed on Sunday after a bank run. Its stocks for the regional banks severely crashed.
Again, the San Francisco-based First Republic Bank spiraled toward the next collapse on Thursday before financial giants like Bank of America, JPMorgan Chase, Wells Fargo, and Citigroup each made dollar 5 billion deposits. Jerome Powell, the Fed Chairman, commented that other banks helping to support SVB show the resilience of the banking system in America. The rescue plan had reversed what a deep sell-off of First Republic’s stock was. The stock rose to about 10 percent on Thursday, which was to close at $ 34.27. However, it remains down above 75 percent from its price that was earlier this month.
An SVB shareholder now filed a class-action lawsuit on Monday. This is against the bank and its former high executives. The lawsuit claims SVB knew it was susceptible to a bank run because of its rising interest rates. The lawsuit also claims that the bank artificially inflated its stock price by issuing statements claiming that the rate hikes were not any cause for concern.
Finally, Silicon Valley Bank failed after announcing that it sold securities at a dollar 1.8 billion loss and planned to sell additional company stock to raise capital. This signaled liquidity problems. This prompted venture capital funds to urge clients to pull money from SVB. So, those clients saved all of their money this week after the Treasury Department lifted its dollar 250,000 caps on the insuring bank accounts.
According to the Wall Street Journal, Silicon Valley Bank is also facing several investigations from the Securities and Exchange Commission and the Justice Department into its collapse.