Silicon Valley Bank (SBV) is the largest bank to collapse since the 2008 crisis and the second largest bank to collapse in US history. This isn’t the result of a bad loan or any sour investment, it possibly seems due to a bank run.
In SBV most Venture capital and their client have an account The downgrade rating from moody has seemed to cause panic To meet a cash withdrawal, SVB had to fire the sale of its assets which has caused an estimated loss of 1.8 billion $,
Then to raise money and boost cash balance and restore confidence, It’s the parent company offers convertible preference shares. rather than calming it creates panic in the Venture capital space and they advised their client to withdraw the money and they did.
and in a single day, a withdrawal of 42 billion $ was seen which was about a quarter of the deposit. So it couldn’t raise money to fulfill depositor demand so the regulator took over. A bank does not go bankrupt, it is always bailed out.
Since the FDIC has taken over it will sell off the assets of the bank and cover customer deposits if they have cover under FDIC insurance. But *the problem* is that FDIC insurance only covers up to $250000 since in SVB most account is venture capital, and $ 250000 is too small,
And the next big observation is that 99.5% of account is not covered by FDIC insurance and foreign deposit in the bank are also not covered under FDIC and FDIC insurance cover for venture capital is too small it’s like you will only get cherry from the cake.
In Nepal DCGFÂ ( Deposit & Credit Guarantee Fund) guarantees the deposit of the natural person depositors upto Rs. 5 lakhs held with the commercial banks and financial institutions licensed by Nepal Rastra Bank. List of institution are
- ‘A’ Class Commercial Banks
- ‘B’ Class Development Banks
- ‘C’ Class Finance Companies
- D’ Class Micro Finance Institutions
The main reason of SVB crisis was raising interest rate by FED (Federal Reserve System) who has been increasing its rate from last 6 months , due to which the valuation of bond held by SVB fell down as increase in rates have inverse relation with price of bond, and other hand the risk of downside valuation was not hedged by entity which was quite shocking , However in Nepal we don’t know what is the current financial health investment made by banks but the quarterly reports of banks are in positive notes , Hence we must be optimistic about the scenario of bank.
