Shares of several banks and financial companies are trading lower following the closure of SVB Financial Group (NASDAQ:SIVB) and Signature Bank (NASDAQ:SBNY), which has sparked fears of contagion across the broader financial sector.
What Happened: The biggest banking collapse since the 2008 financial crisis was spearheaded by a bank run on Silicon Valley Bank last week.
SVB Financial, the parent company of Silicon Valley Bank, collapsed in a matter of days as a result of liquidity issues. The bank serves many startups and smaller tech companies. Deposits from these clients soared during the pandemic as many of them grew their cash positions. SVB decided to buy U.S. Treasurys and government-backed mortgage securities with the influx of cash.
Amid the current rising rates environment, inflows turned to outflows and SVB was forced to sell some of its longer-term treasurys at a loss to cover the withdrawal requests, but even that wasn’t enough.
SVB also went to the public markets to raise additional capital, announcing plans to offer $1.25 billion of its common stock and $500 million of depositary shares. As a result of the announcement, the stock tanked, which put more pressure on the bank.
The panic in the markets sparked a bank run as several customers rushed to withdraw capital, and ultimately, the bank’s cash position ran dry. SVB then looked to find a buyer in order to source alternative funding, but the Federal Deposit Insurance Corporation (FDIC) shut it down and placed the bank under receivership.
Everything You Need To Know: Why Silicon Valley Bank Collapsed: A Simple Explainer
Signature bank was next. According to a CNBC report, citing a board member, customers withdrew more than $10 billion the day after the bank run on Silicon Valley Bank took place. The contagion has spread to First Republic Bank (NYSE:FRC) and fears of broader impacts are hitting other related names.
Several banks have come under significant selling pressure in the wake of the collapse.
Some big names sliding as a result of the fallout include JP Morgan Chase & Co (NYSE:JPM), Bank Of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), Credit Suisse Group (NYSE:CS), Goldman Sachs Group Inc (NYSE:GS) and Wells Fargo & Co (NYSE:WFC), among several others.
Photo: Klarinette71 from Pixabay.