Italy, April 24, 2023.
The banking crisis and the subsequent fall of Silicon Valley Bank present a compelling case study worth exploring. Antonio Velardo tells how the SVB, one of the main lenders of venture capital funds and emerging companies in the technology sector, sank
The Diversification Problem The failure of Silicon Valley Bank was partly due to a lack of diversification of its investments. Much of its deposits were in long-term US Treasury bonds and agency mortgage-backed securities, which became a problem when interest rates rose. In addition, when the economic crisis hit the technology sector, many clients withdrew their money and the bank was unable to cover its obligations due to lack of cash, declaring bankruptcy just 48 hours later. Bank run Silicon Valley Bank bankruptcy, says Antonio Velardo, ” it was exacerbated by a bank run triggered in part by social media, which spread panic over the bank’s lack of funds.Following the announcement of the capital increase, SVB shares plummeted 60% on March 7. The next day, California regulators closed the bank and placed it under FDIC conservatorship.Large tech companies like Roku and Etsy held significant amounts of cash in SVB accounts, but the accounts were only insured up to $250,000.”Impact from the banking crisis in the tech sector The tech sector has been hit hard, as big tech companies have cut staff and start-ups may struggle with funding. “Markets anticipate a 37% probability of a 75 basis point cut in the Federal Reserve funds rate for the last meeting of this year,” explains Antonio Velardo. View of the markets and sector allocation “As a macroeconomic analyst and equities, I have observed that financing is increasingly selective and that the companies that run the most risk are those that are excessively leveraged and have used leverage to acquire overvalued assets” points out Antonio Velardo. These companies lack the capacity to manage expensive debt and do not have the asset value to service their debts. Finally, Antonio Velardo says that “central banks are in a difficult situation as they try to balance stability and inflation”, which offers opportunities to investors. Furthermore, for policy makers, this task is a difficult challenge to overcome. “We must ask ourselves if a soft landing is still possible or if difficult decisions will be necessary.”
Contact Contact name: Roberto García Contact description: Roberto García Contact telephone number: 679876564
