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Why did Silicon Valley Bank Collapse?

After a hectic 48 hours in which clients frantically withdrew savings from the lending institution in a traditional run on the bank, SVB abruptly collapsed. However, the cause of its downfall has been simmering for a while. Like numerous other financial institutions, SVB poured billions into US government assets during the period of near-zero interest rates. As the Federal Reserve aggressively increased interest rates to control inflation, what initially appeared to be a secure wager soon unraveled. Bond values decline as interest rates rise, so the increase in rates reduced the worth of SVB's bond portfolio. The collection was producing an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%. At the same time, rising financing costs were a result of the Fed's rate hikes.

What the US President Did to Protect the Financial Markets?

With the collapse of US Silicon Valley Bank and US President Joe Biden's subsequent attempt to convince consumers that the US financial system was safe, bank stocks throughout the world plummeted. This comes after US authorities were forced to intervene to preserve consumer deposits following the bank's failure.

Joe Biden has committed to go to whatever length to safeguard the financial sector.

But, investors are concerned that the impact would affect other lenders, sending global share values falling.

Despite promises to clients that they had enough liquidity to defend themselves against shocks, a handful of smaller US banks incurred even larger losses than European banks.

Will Depositors and Investors be Covered?

The deposits of all Silicon Valley Bank clients will be guaranteed, US authorities announced on Sunday. The action aims to stop further bank runs and assist tech firms in continuing to pay employees and finance their operations. On March 9, 2023, Silicon Valley Bank's offices will be located in Santa Clara, California, in the US. Bonds issued by SVB Financial Group are falling along with its stock as a result of the company's decision to increase capital following losses on its securities holdings and a decrease in financing. US authorities state that as a second bank fails, SVB clients will be compensated. But because the action falls short of a rescue in the mold of 2008, holders of the company's shares and bonds won't be covered.

How HSBC UK Saved the Day in Britain

With its intervention on Monday, HSBC secured the assets of thousands of British tech firms by purchasing SVB UK for ÂŁ1 ($1.2). If a buyer hadn't been located, the Bank of England would've declared SVB UK insolvent, rendering clients with only guaranteed deposits valued up to ÂŁ85,000 ($100,000) or ÂŁ170,000 ($200,000) for joint accounts. The deal "strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally," said HSBC CEO Noel Quinn in announcement.