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The IMF continues to monitor the effects of the bankruptcy of SVB on the global economy

The IMF continues to monitor the effects of the bankruptcy of SVB on the global economy

The entity, founded 40 years ago and recognized for financing emerging technology companies (startups) of Silicon Valley to which the big banks are usually reluctant to lend money, began to suffer a run last Thursday, after learning a letter from his CEO Greg Becker to the shareholders of BLS in which he indicated that the bank had losses of US$1.8 billion in the first quarter and that, faced with this, it was planning an accelerated placement of shares of US$1.75 billion to clean up its capital position.

After Becker’s letter became known, a bank run began in which investors and savers tried to extract $42 billion in less than 24 hours.

The withdrawal was prompted by the very own venture capital firms that advised the startups withdraw funds from the bank at the risk of insolvency, despite Becker’s pleas for calm to the bank’s large clients. At the time of its closure by the federal authorities on Friday, the bank had a negative balance of US$958 million.

What the IMF said about the bankruptcy of the SVB

Given the negative effects that the bankruptcy of the Silicon Valley Bankthe spokesman for IMF said they are closely following developments and that they maintain full confidence that the United States Government of Joe Biden will carry out the necessary measures to contain the situation.

“We are closely monitoring developments and the potential implications for financial stability, and have every confidence that US policymakers are taking the appropriate steps to address the situation.”an IMF spokesman told Reuters in a statement.

Earlier, the United States Secretary of the Treasury, Janet Yellen, He said in Washington that “the banking system is secure, well capitalized and resilient,” while confirming that “officials are working to address this situation in a timely manner.”

In an interview with CBS, Yellen said that “regulators are working over the weekend to resolve the collapse of Silicon Valley Bank (SVB) with a particular focus on depositors, rather than bailing out investors,” although he declined to provide details of possible solutions.

“Let me make it clear that during the financial crisis, there were investors and owners of large systemic banks that were bailed out…and the reforms that have been put in place mean we’re not going to do that again,” Yellen told the Sunday Morning programme. from CBS News. This way, the economist ruled out a bailout for the entity.

“But we care about depositors and we’re focused on trying to meet their needs,” Yellen said.

SVB CEO sold shares before collapse

Yellen’s statement comes after news broke that Silicon Valley Bank CEO Greg Becker sold $3.6 million worth of shares in the bank two weeks before the collapse of the entity that was closed yesterday by the United States Government to protect the deposits of its clients and that will be reopened on Monday under federal control.

Becker sold 12,451 shares on February 27, the first time he did so in more than a year, according to forms submitted to regulatory authorities that were released by the Bloomberg news agency.

The plan to sell the shares had been delivered just over a month earlier, on January 26.

Both Becker and SVB have not yet responded to press inquiries regarding this sale of shares and whether or not the operation simply responded to a temporary coincidence.

Becker’s moves put another element under scrutiny at SVB, a bank that was closed yesterday by the US government to protect its clients’ deposits and will reopen Monday under federal control.

Why did SVB go bankrupt?

SVB was particularly affected by the sudden change in US monetary conditions: in 2021, companies supported by venture capital firms managed to finance themselves for a record of US$330,000 million, in a context of ultra-low rates by the FED.

The bank took billions of dollars in deposits and, confident that rates would not change, He placed the money in long-term Treasury bonds..

However, with record inflation in 40 years, the Fed ordered one of the fastest monetary adjustments in its history, and the bonds lost much of their value.

Another effect of the rate hike was the impact on the technology sector because these companies -especially in their early stages of development- are the ones that most need cheap financing to solve a growth that is not profitable in its first years. Without financing, they need to withdraw their savings from banks.

In a domino effect, the rate hike caused SVB’s deposits to fall and the bank had to sell its devalued bonds at a loss.

Source: Ambito

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