Silicon Valley Bank, one of the leading lenders to technology startups in the United States, has collapsed into Federal Deposit Insurance Corporation (FDIC) receivership. The bank’s long-established customer base of technology startups became worried and started withdrawing deposits, leading to a liquidity issue that brought the bank down. Receivership typically means that the deposits of a failed bank will be assumed by another healthy bank or the FDIC will pay depositors up to the $250,000 insured limit.
California banking regulators are now taking steps to dispose of Silicon Valley Bank’s assets and protect depositors in the wake of the crisis. The bank had $209 billion in assets and $175 billion in deposits at the time of its failure, according to the FDIC. The news of SVB’s collapse sent shockwaves through the global markets, leading to a crash in financials on both sides of the Atlantic and wiping off hundreds of billions of dollars in market value.
The liquidity issue at Santa Clara-based SVB came to light on Thursday night, causing its stock price to crash by more than half. The bank then faced a run on deposits, leading to its stock hitting a seven-year low and trading being suspended. The impact of the troubles at SVB quickly spread across the globe, with investors worldwide keeping a close eye on the situation.
In India, the news of SVB’s collapse also had an impact on the stock market. As investors pressed the sell button, the sensex fell by over 900 points in early trades. However, some bottom fishing helped it close at 59,135, down 671 points or 1.1% on the day. Banking and financial stocks led the slide, with BSE’s banking sector and financial services indices closing around 1.8% down.
Investor sentiment in India was also affected by rising expectations of a 50-basis-point hike in the US interest rate later this month, which could affect foreign investors’ interest in emerging market stocks, including those in India. Among the sensex constituents, the top six losers for the day were all from the BFSI sector: HDFC Bank, HDFC, SBI, IndusInd Bank, Axis Bank, and Bajaj Finserve.
Despite the news of SVB’s collapse, retail investors in India continued to put money in the stock market through the mutual fund route. However, debt fund investors remained cautious as interest rates remained at an elevated level. The monthly flows through Systematic Investment Plans (SIPs) in February showed a marginal drop compared to the January figure, but industry players attributed that to the shorter month. In February, equity mutual fund schemes together recorded a net inflow of Rs 15,686 crore, compared to Rs 7,303 crore in December 2022, according to the Association of Mutual Funds in India (AMFI).
The collapse of Silicon Valley Bank highlights the fragility of the banking system, particularly when it comes to smaller banks with a concentrated customer base. It also shows the interconnectedness of global markets and how a crisis in one part of the world can quickly spread to others. The fallout from this collapse is likely to be felt for some time to come, and regulators worldwide will need to take steps to prevent similar events from happening in the future.