Silicon Valley Bank (SVB), a US bank that went out of business, is selling its assets and loans to First Citizens BancShares.
People were worried about the safety of other lenders when Silicon Valley Bank went bankrupt earlier this month. This caused bank stocks all over the world to drop sharply.
People in Europe worried about the strength of the big Swiss bank Credit Suisse sped up a deal for its rival UBS to buy it.
Even though bank stocks were higher when the market opened on Monday, the markets have remained nervous.
The shares of Germany’s Deutsche Bank fell by 14% at one point on Friday, but then they started to go up again. When trading began on Monday, they went up by about 3%.
There was a rush on the bank this month, so US regulators took over Silicon Valley Bank. Soon after, Signature Bank, another US bank, closed its doors.
This was the biggest bank failure in the US since the financial crisis in 2008.
The new Silicon Valley Bank
The US Federal Deposit Insurance Corporation (FDIC) said that SVB would be taken over, and on Monday, all 17 former Silicon Valley Bank branches will open as First Citizens branches.
Customers of Silicon Valley Bank should keep using their current branch until they hear from First Citizens Bank that their account has been moved over completely.
First Citizens is the largest bank in the United States that a single family runs. The headquarters are in Raleigh, North Carolina. It has been one of the biggest buyers of troubled banks in the past few years.
It bought loans and assets from SVB worth about $72 billion at a discount of $16.5 billion. The FDIC will still own about $90 billion of SVB’s assets.
If Silicon Valley Bank failed, the FDIC said, it would cost its deposit insurance fund about $20bn.
This month, HSBC paid £1 to buy the UK branch of SVB.
The chance that rates will go up
During the 2008 global financial crisis and the Covid pandemic, central banks worldwide cut interest rates sharply to help the economy grow.
But rates have been increasing over the past year as central banks try to stop prices from increasing too quickly.
Because of these rate hikes, the value of the investments where banks put some of their money has decreased. This has made it harder for US banks to stay in business.
The financial markets are worried that the banking sector could have more problems that have yet to show up.
The world’s central banks have all said that banks are safe and that lenders have enough money to cover their costs.
Sarah Hewin, who is in charge of research at Standard Chartered bank for Europe and the Americas, said on the BBC’s Today show that investors are in a “febrile environment.”
“Right now, emotions are more important than facts regarding markets.”
On Sunday, the head of the International Monetary Fund, Kristalina Georgieva, said that banks “need to be vigilant” and that it is “clear that risks to financial stability have increased.”
Is this as bad as the 2008 financial crisis?
There isn’t a problem that affects the whole system, like in 2008, when banks worldwide suddenly realized they had made bad investments in the US housing market.
This made the government give out huge bailouts and caused a global recession.
Since then, banks have been told to keep more capital on hand, and rules about risk have become stricter. Nevertheless, most experts think that our problems will be manageable.
Even so, it still needs to be easier to figure out how banking works. When the system is under a lot of stress, it can be hard to find new weak spots. This happened in September when Liz Truss’s government surprised the markets with a new economic plan, and it’s happening again now with higher interest rates and less confidence.
Also, concerns about the health of banks like Credit Suisse and Deutsche Bank tend to spread quickly. People can move their deposits with the click of a mouse if they start to worry about them.
Even if the trust only breaks down partially, as it did during the financial crisis, regulators could make the rules even stricter, and banks might be less willing to lend.
This could slow the world economy down when it needs to speed up.