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Saturday, June 10, 2023

Sale of Silicon Valley Bank’s Deposits and Loans Affected the Markets

The sale of Silicon Valley Bank’s deposits and loans to First Citizens BancShares Inc has caused a ripple effect in the markets, which have been rattled by fears of a credit crunch and potential bank stress. This acquisition, which involved a discount of $16.5 billion for approximately $72 billion in SVB assets, has provided some relief to the fragile markets, as it marked the first weekend in several weeks without news of new bank failures, rescue deals, or emergency aid from authorities to shore up confidence.

According to the FDIC, the estimated cost of SVB’s failure to the deposit insurance fund was around $20 billion, which highlights the importance of guaranteeing deposits at other regional banks. This sentiment was echoed by Tony Sycamore from IG Markets in Sydney, who argued that the bigger issue is ensuring the security of deposits at other regional banks.

The acquisition by First Citizens BancShares Inc also granted the Federal Deposit Insurance Corp equity appreciation rights in its stock valued at up to $500 million. As a result, 17 former SVB branches opened as First Citizen branches on Monday.

The sale of SVB’s deposits and loans to First Citizens BancShares Inc has not only affected the markets, but it has also raised concerns about the security of deposits at other regional banks. As such, it is crucial for authorities to ensure that the deposit insurance fund is protected, and deposits are guaranteed.

As financial market indicators showed signs of stress and Deutsche Bank’s shares fell 8.5 percent on Friday, with the cost of insuring its bonds against default sharply rising, some are viewing the current state of the markets as “a little bit of calm before the next storm.” On Monday, bank shares in Asia experienced mixed results, with steadiness in Australia and Tokyo but a slip in Hong Kong, where Standard Chartered shares fell 4 percent. Meanwhile, S&P 500 futures rose 0.5 percent and European futures rose 1 percent.

The reverberations of the SVB collapse, which occurred a little over two weeks ago, have been felt around the world. US depositors have been moving away from smaller banks and toward larger ones, while Credit Suisse was forced to seek refuge with rival UBS last week due to the hit to confidence. Investors are on edge about what may come next, as the Stoxx index of European bank shares is down over 18 percent and the US KBW regional bank index has lost 21 percent in March.

According to Australia and New Zealand Banking Group Chief Executive Shayne Elliott, “It’s clearly not over,” and the turmoil has the potential to escalate into a larger financial crisis. In an interview posted to the bank’s website, Elliott said, “I don’t think you can sit here and say: ‘Well, that’s all done, Silicon Valley Bank and Credit Suisse and, you know, life will go back to normal.’ These things tend to roll through over a long period of time.”

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