SVB, SILVERGATE & SIGNATURE, 3 failed banks: causes and consequences

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6 min
By Birdee


Everyone remembers the painful financial crisis of 2008, when the banking world discovered the tumultuous nature of real estate loans granted to borrowers with particularly weak financial situations (commonly known as 'subprime' loans). These loans were then transformed into structured investment products (with a first-class quality score) and distributed to the entire institutional financial sphere in the USA and Europe.

Massive defaults by borrowers and the loss of value of these derivatives triggered a chain of catastrophic events: the balance sheets of investment banks, retail banks, insurers and public entities plummeted to the brink of bankruptcy. Lehman Brothers would be the only bank allowed to file for bankruptcy: this major event created a widespread panic, causing clients to withdraw their money from banks: a disaster scenario for the banking sector.

At that moment, the public authorities (and therefore the taxpayer) organized the restructuring and refinancing of the financial sector to avoid the worst (these banks then inherited the cynical adjective 'Too big to fail'). Since then, financial markets have been massively reformed, and regulators have gained power to continuously monitor the sector and avoid the mistakes of the past.

This disaster has created a trauma for taxpayers and investors, which partly explains the strong reaction of the markets last Friday and this Monday.


The US and European stock markets fell sharply last Friday and on Monday 13 March following the sudden collapse of Silvergate Bank, and then Silicon Valley Bank and Signature Bank, which were placed under Fed supervision.

In order to understand what happened, we need to understand the nature of these three banks.

Silvergate Bank is a local California bank, primarily serving companies in the cryptocurrency sector. Since the collapse of FTX, a cryptocurrency exchange platform with risky financial arrangements, on November, 11th 2022, Silvergate has been experiencing a massive withdrawal of its customers.

Indeed, the bank's positioning at the heart of a crisis sector raised the suspicion of financial difficulties. To meet these withdrawal requests, the bank was forced to liquidate a large part of its assets, invested in Treasury bills which, as we know, have lost a lot of value in 2022 following the rise in central bank rates.

This situation led the bank to declare its liquidation on March 8th, bringing in its wake, by the same panic effect, the closure of Silicon Valley Bank and Signature Bank, also specialized in the crypto-currency sector and other innovative start-ups of the tech scene.


The US government, through President Biden, assures that the FDIC (the US deposit guarantee fund) will play its role and allow the reimbursement of customers of these local banks, up to the authorized limit of $250,000.

Furthermore, the public authorities support the fact that the collapse of these local banks is not a systemic threat to the global financial and banking sector, as was the case with the 2008 subprime crisis.

These arguments should reassure savers and calm the panic. It is indeed essential that the panic doesn't spread to the clientele of the large traditional banks which, even without any particular attachment to the world of cryptocurrency, may be in financial difficulty in the event of a widespread and instantaneous demand for withdrawals by depositors*.

*A traditional bank uses the money deposited in its accounts to finance economic development projects (through loans to companies, investments, or mortgages or instalment loans for individuals). It is nevertheless required to keep sufficient equity to meet its short and medium term operational obligations: it must indeed be able to repay a client who requests a withdrawal in a normal economic and financial context or under stress. This solvency ratio therefore marks the limit at which a bank will have to liquidate assets or borrow money in order to honour its debts to its depositors.


Birdee has no connection with cryptocurrency or any platform active in cryptocurrency and, not being a credit institution, Birdee is not subject to the same liquidity issues as banks, as our clients' assets are deposited in registered, off-balance sheet accounts.

Nevertheless, these events triggered a strong reaction from the financial markets which, in the emotion, reallocated their positions in favour of fixed income products, to the detriment of financial and technological shares.

Since the end of last week, we have seen turbulence on the major equity indices (-4.5% for the Euro Stoxx 50 on Friday 10th and Monday 13th March), and a revaluation of fixed income products.

These movements can also be explained through three lines of reasoning:

1. Equity markets, which rebounded spectacularly at the beginning of the year (with European indices reaching their pre-2022 value), had plateaued since mid-February, a sign that the enthusiasm was waning and that analysts were waiting for the publication of macroeconomic reports to assess the rest of the quarter. The current news was the catalyst to trigger profit taking following the January rally.

2. As we have written previously, these fluctuations (both up and down) reflect the volatility that has existed in the markets since 2022, against a backdrop of macroeconomic uncertainty (including employment rates, the resilience of economic and industrial activity in Europe, the US and China, and local and global inflation levels). In these emotionally challenging times, it is important to maintain a long-term view, while keeping a cool and reasoned analysis.

3. The fall of the 3 banks is concrete proof of the stakes linked to the rise in interest rates initiated by the central banks. Indeed, the financial and banking system is intimately dependent on the health of interest rate securities, and it is essential not to cause a too sudden deterioration of these values through a rapid and continuous increase in key rates. This warning could lead central banks (notably the Fed) to review their monetary policy and soften the rate hikes that we are seeing. The fight against inflation was until now counterbalanced by the risk of recession. From now on, their decisions will depend not only on indicators but also on concerns about the stability of the system.

At the time of writing (mid-day March 14th), the indices are already rebounding to partially correct the fall of the last few days.

We hope that this text will help you to better understand the news that is driving the markets and the movements of your Birdee portfolio.

As always, we remain at your side and at your disposal to answer any questions you may have!


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