What is Silicon Valley Bank?
Silicon Valley Bank (SVB) was founded in 1983 and was America’s sixteenth largest bank. The head office is located in California and the main activity has been lending to tech and growth companies in the Silicon Valley area.
The bank also has operations in Great Britain, China, Germany and Denmark. And since some time ago, there is also an office in Sweden.
SVB’s collapse was the starting point for the ongoing banking crisis.
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Why did the bank collapse?
The background to SVB’s problems is that the bank made large investments in government bonds. When the American central bank, the Fed, has raised the key interest rate in several rounds, these have fallen sharply in price.
In the middle of last week, SVB stated that it had been forced to sell the bonds at a loss and that it needed the equivalent of SEK 20 billion in new capital to cover its balance sheet.
The concern spread among the bank’s investors, who quickly withdrew the equivalent of SEK 420 billion. There was a so-called bank rush and the SVB share plummeted by more than 60 percent on the New York stock exchange.
At the end of the week, trading in the stock was halted and soon after, US authorities decided to close the bank and take control of its assets.
The decision to step in was made by US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and FDIC Chairman Martin Gruenberg after discussions with President Joe Biden. Archive image.
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What is happening now in the US?
After the SVB collapse, parts of the banking sector have plummeted on the American stock market. New York-based Signature Bank has also collapsed and been shut down by US authorities.
First Republic Bank’s stock fell more than 60 percent on Monday, and the Western Alliance bank plunged nearly 50 percent.
To calm the financial world, US regulators stepped in and guaranteed deposits in the collapsed banks.
President Joe Biden said in a statement on Monday that the US banking system is safe and that he wants to strengthen supervisory rules for banks.
After the SVB collapse, the US dollar and interest rates on government bonds have fallen.
Several investors fear that the Federal Reserve’s (Fed) interest rate hikes have gone too quickly and that interest-sensitive parts of the economy are now starting to be knocked out.
Heavyweight analysts also say they no longer believe the Fed will raise interest rates at its next meeting in March.
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How is Sweden affected?
According to the Riksbank and the Financial Supervisory Authority (FI), the banking crisis in the USA has no impact on the stability of the Swedish financial system at the moment.
The government is “on its toes”, according to Financial Markets Minister Niklas Wykman (M).
Developments in the USA and the spillover effects of the turbulence are being followed closely, according to Riksbank Governor Erik Thedéen.
Sweden is better equipped now than during the global financial crisis in 2008, according to Finance Minister Elisabeth Svantesson (M).
Per Strömberg, professor of financial economics at the School of Economics, sees it as unlikely that the situation will develop into a deep international financial crisis. But it could lead to greater demands on the banking sector in the future, according to him.
Alecta’s customers can feel secure, according to CEO Magnus Billing. Archive image.
The Swedish pension giant Alecta has in recent years invested in both SVB, Signature and First Republic Bank and is now at risk of losing multi-billion sums.
But the losses affect Alecta and pension savers only marginally, according to CEO Magnus Billing.
According to FI, the impact on Alecta’s return is small and the effect on future pensions is “very low”.
For the public pension system in Sweden, the American bank collapses have no impact at all, according to the Swedish Pensions Agency.