First Citizens BancShares is acquiring the assets and loans of Silicon Valley Bank (SVB), a failed US bank.
Many were concerned about the safety of other lenders after Silicon Valley Bank declared bankruptcy earlier this month. This caused bank shares all across the world to plummet.
Concerns about the soundness of the giant Swiss bank Credit Suisse accelerated a deal for rival UBS to buy it.
Despite the fact that bank stocks opened higher on Monday, the markets remained apprehensive.
Deutsche Bank’s shares, based in Germany, fell by 14% at one point on Friday before making some gains. On Monday, trading started, and they increased by about 3%.
After a run on the bank earlier this month, US regulators took over SVB. Soon after, another US bank, Signature Bank, went out of business.
The failure of these two banks was the biggest in the US since the 2008 financial crisis.
Silicon Valley Bank gets a new start
The US Federal Deposit Insurance Corporation (FDIC) announced that Silicon Valley Bank 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 completely moved over.
First Citizens is the biggest family-run bank in the United States. It is based in Raleigh, North Carolina. In the past few years, it has been one of the biggest buyers of banks in trouble.
It bought about $72 billion in loans and assets from SVB at a discount of $16.5 billion. As a result, the FDIC will still own about $90 billion of SVB’s assets.
The FDIC said that SVB would cost its deposit insurance fund about $20bn if it failed.
HSBC bought the UK branch of Silicon Valley Bank earlier this month for £1.
Risk of rates going up
During the global financial crisis of 2008 and again during the Covid pandemic, central banks worldwide cut interest rates sharply to boost economic growth.
But over the past year, rates have been going up as central banks try to stop prices from going up too fast.
The value of the investments that banks keep some of their money in has gone down because of these rate hikes. This has contributed to the failure of US banks.
The financial markets are worried that there could be more problems in the banking sector that have yet to show up.
Central banks worldwide have said that the banking system is safe and that lenders have enough money to cover their costs.
Sarah Hewin, who is in charge of research for Europe and the Americas at Standard Chartered bank, said on the BBC’s Today show that investors are in a “febrile environment.”
“Right now, markets are being driven more by psychology than reality.”
Kristalina Georgieva, in charge of the International Monetary Fund, said on Sunday that there was a “need for vigilance” in the banking sector and that it was “clear that risks to financial stability have increased.”
Is this as bad as the 2008 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 led to huge bailouts from the government and a recession around the world.
Since then, banks have been told to keep more capital on hand, and rules about risk have gotten stricter. Most experts think that our problems won’t do too much damage.
Still, it’s hard to understand how banking works. When the system is under stress, it can be hard to tell where new weak spots might be. 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 falling confidence.
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Also, worries about the health of banks like Credit Suisse and Deutsche Bank tend to spread quickly. When people start to worry about their deposits, they can move them with the click of a mouse.
Even if the trust only partially breaks down 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 down the world economy when it needs to pick up speed.