Will the Bankruptcy of Silicon Valley Bank Affect Turkey?

Silicon Valley Bank, the 16th largest bank in the USA, recently officially announced its bankruptcy. The repercussions of the bankruptcy of such a large bank, which has assets of approximately $206 billion and has the opportunity to receive support from the state, continue. So what are the lessons we should draw from this bankruptcy?

Silicon Valley Bank, not just from the US from all over the world It provided loans to start-up projects. For this reason, the collapse of Silicon Valley affected many people. In order for a bank that reaches so many people to go bankrupt, it is necessary to make serious mistakes. Unfortunately, SVB also made exactly such big mistakes.

In the light of all this, it is very important that we know the mistakes made by the Silicon Valley Bank and learn from these mistakes. Putting all that aside, is there a possibility that the effects of this bankruptcy will reach us? Economist Şenol Babuscubankruptcy of Silicon Valley Bank the underlying causes and the consequences we must draw from this bankruptcy. we asked. Before moving on to Babushcu’s answers, let’s remember what happened.

After Silicon Valley Bank, two more big banks of the USA declared bankruptcy.

One of these banks was Silvergate Capital and the other was Signature Bank. While the collapse of the SVB alone caused a great stir in the country, the bankruptcy of two more banks, which we can list among the important banks of the country, created question marks in mind, but the story of the bankruptcy of the three banks is also different. Unlike SVB, which finished Silvergate Capital and Signature Bank drop in crypto markets it happened.

The bankruptcy of SVB is a true story of bankruptcy. Silicon Valley Bank was known and trusted by the whole world. For this reason, not only start-up companies took out loans, but also developers, individuals and organizations kept their money in deposit accounts at SVB. Total in the bank The number of deposit accounts was increasing day by day.

In 2020, the SVB’s bond portfolio exceeded $30 billion.

Silicon Valley Bank Bankruptcy

To briefly explain what a bond portfolio means, all of the securities that the bank bought in exchange for lending to the government we can say. Now let’s get back to our topic; Silicon Valley Bank’s bond portfolio, which totaled $30 billion in 2020, approached $130 billion in 2021. So at that time the SVB had enormous financial power. However, the Fed interest rates were 0 at that time and US bond rates were around 2%. When we come to 2022, the total of the bank’s assets 212 billion dollars was worth it.

As you know, economic conditions pushed the FED to increase interest rates. After the tension between Russia and Ukraine and the crisis with China, when it came to March 2022, the FED had increased the interest rates to the range of 4.50-4.75%. This situation is in the hands of the SVB. caused the bonds to depreciate and perhaps the foundations for his bankruptcy were laid.

As a result, while start-up costs continued to rise with increasing inflation, companies started to close their deposit accounts one by one. SVB sold his bonds for nothing And shares fell sharply. Thus, the bank was unable to meet its withdrawal demands and had to declare its bankruptcy.

One of the biggest mistakes of the SVB was to ignore the crisis.

svb bankruptcy

Şenol Babuşçu, who opened our horizons at every opportunity with his knowledge of the economy, explained the reasons behind the bankruptcy of the SVB as follows: FED, will raise interest rates Despite saying it at every opportunity, SVB continued to buy public debt instruments at low interest rates with a contrary attitude. As a result, while negative interest rates reached 50%, the increase in interest rates inflicted great losses on the banks.

On the other hand, according to Babusçu; The increasing liquidity needs of start-up deposit customers were also not foreseen by the SVB. For this reason too incompatible with high inflation purchases were made and the bank suffered a great loss after the FED’s interest rate hike.

Let’s come to us… There are lessons to be learned from this sinking story.

Silicon valley

Unfortunately, not only in the USA; This is the situation all over the world. Banks buys bonds with low interest rates by thinking long term but it suffers a loss after rising interest rates with inflation. As a result, high-interest deposits renewed with short maturities are used to cover long-term debt instruments.

Of course, above all, SVB’s failure to manage risk was one of the building blocks of its bankruptcy. It would not be correct to say that every bank has experienced or will experience a similar situation by showing this as an example, but investing according to economic conditions We understand its importance.

The bankruptcy of a bank can affect many companies, investors and banks.

domino effect

The bankruptcy of big banks like Silicon Valley is in many ways a dire scenario. As a result, banking is a trust-based entity and you have other people’s ‘money’ within you. Moreover, big banks like the SVB are not just for people; He also holds the money of other banks, companies, developers and start-up projects. These companies with large sums also want to withdraw their money from the bank. This money must be in your safe.

For this reason, the bankruptcy of such a large bank with customers around the world. big risks also contains. For example, because such large bankruptcies can endanger the assets of different companies. “domino effect” can create.

So, can this bankruptcy affect “us”?

bank

Şenol Babuşçu, of the crisis after the bankruptcy of Silicon Valley Bank that they do not expect it to affect the banks in our country. expressed. Currently, Silicon Valley Bank has been seized by the Federal Deposit Insurance Corporation. deposit accounts are protected. For this reason, it seems unlikely that the crisis will grow and reach us.

The success or failure of banks in risk management comes to the fore even in situations that are difficult to manage, such as the economic crisis. It should not be forgotten that; SVB because it ignores most of the signals in this state. For this reason, it is very important for all of us to consider the negativities that may happen to us in both our individual and corporate investments, or at least to consider the signals.

If you want to get more detailed information about the collapse of Silicon Valley Bank, you can also take a look at these contents:

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