Elon Musk predicted he intended to buy failing bank amid fears of contagion effect

The US government said on Sunday it would bail out depositors but not the Silicon Valley bank which went bankrupt last week after a series of financial maneuvers.

Meanwhile, the US government is currently looking for an immediate buyer for this Californian financial entity, whose fall caused negative results on Wall Street on Friday; these declines are expected to be replicated on Monday if there is no news on this.

Among the potential buyers of this bank, whose bankruptcy was the second largest since the 2008 crisis, was the billionaire owner of Twitter and Tesla, Elon Musk. In a tweet posted this Friday, the co-founder and CEO of Razer, Min Liang TanHe said: “I think Twitter should buy SVB and become a digital bank.” And Musk replied, “I’m open to the idea.”

Meanwhile, US Treasury Secretary, Janet Yellendeclared that the government of Joe Biden it will not save the entity as has happened in the past with banks that were rescued during the financial crisis of 2008-2009. This is due to the concept of avoiding the “moral hazard” of sparing shareholders, although of course the government might change its mind if the crisis spreads to other North American financial entities.

On the other hand, it has been confirmed that there will be more guarantees for depositors affected by the fall of the SVB, in charge of the Fed and the Federal Deposit Insurance Corporation (FDIC), the entity that manages the insurance deposits in the United States. Among those affected are numerous startups whose deposits have been frozen in the entity that was shut down last week by the California state government, known for providing its services to startups, tech companies and investors in capital risk.

“Secretary Yellen has approved measures that allow the FDIC to complement the Silicon Valley Bank of Santa Clara, Calif., solution in a way that fully protects all depositors. Depositors will have access to all their money from Monday, March 13. Any loss associated with the Silicon Valley Bank resolution will be borne by the taxpayer,” the US Treasury said.

“We are also announcing a similar systemic risk exception for Signature Bank, New York, which was closed today by its state authority. All depositors of this entity will be compensated. As with the Silicon Valley Bank resolution, there will be no loss to the taxpayer,” the Treasury said.

“Shareholders and certain unsecured debtors will not be protected. The Board of Directors has also been removed. Any loss incurred by the Deposit Insurance Fund in support of uninsured depositors will be recovered through special assessment of banks, as required by law.

Additionally, he reported that “The Federal Reserve Board announced Sunday that it will make additional funds available to eligible depository institutions to help ensure that banks have the capacity to meet the needs of all of their depositors. “.

On the other hand, he pointed out that “the American banking system remains resilient and rests on solid foundations, largely thanks to the reforms that were made after the financial crisis and which guaranteed better guarantees to the banking sector. These reforms, combined with the measures taken today, demonstrate our commitment to taking the necessary measures to ensure the security of depositors’ savings. »

The country’s 16th-largest bank collapsed after depositors, mostly linked to the tech sector and venture capital-backed companies, withdrew their money within 48 hours.

“More than half of the tech companies had most of their money in SVB and they will all have to pay salaries from the start of next week,” he told the agency. Bloomberg, Greg Martin, founder of the investment company Liquid Stock.

A surprise statement from the bank revealed that it had sold $21 billion in assets and was selling shares to raise cash.

“We literally have no way to pay employees right now,” Alex Meshkin, CEO of Flow Health, told Business Insider. For this reason, “some startups took drastic measures on Friday to try to obtain cash. Popular toy store Camp has told customers it was in trouble after its funds were trapped by the collapse.

“All of our money was in SVB and we’re trying to increase our balance in Chase,” said Camp CEO and co-founder, Ben Kaufmanand BI.

Early indications are that the failing bank’s executives have used short-term securities to invest in long-term funds, causing a mismatch in their balance sheets and a panic that manifested itself last week in a massive withdrawal of deposits.

Cryptocurrencies were also affected, which fell sharply on Friday and Saturday and showed some improvement this Sunday, awaiting encouraging news that there will not be another “Black Monday” in the financial markets north. -Americans.

1) Declining demand for funding. The slowdown in the funding market is due to the relentless increase in borrowing costs by the Federal Reserve over the past year, as well as high inflation.

2) Fear of investment risk. Private equity investors are also more reluctant to write big checks due to the falling stock market, especially stocks of high-flying tech companies.

3) Lack of cash. SVB has seen its cash drained due to lower deposits from start-ups – start-ups – facing a shortage of venture capital funding.

4) Panic due to stock sell-off. The bank had to carry out a forced sale of securities worth 21,000 million dollars on Wednesday 8, which led to losses of 1,800 million dollars and led to a 60% drop in its shares on Wall Street.

5) “Cascade” effect on other banks. San Francisco-based First Republic fell 16.5% after hitting its lowest level since October 2020. First Republic and SVB were the biggest losers in the S&P 500 by percentage on Thursday, while the loss of JPMorgan weighed more than any other stock at 1.9%. S&P 500 fell. Major US banks were also affected, with JPMorgan and Bank of America falling more than 5% and 6% respectively.

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