Bitcoin and gold benefit from the spreading banking contagion as SVB Financial Group files for bankruptcy
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(Kitco News) - SVB Financial Group, the parent company of Silicon Valley Bank (SVB), has filed for bankruptcy, a move that will help simplify the sale of its remaining assets after federal regulators seized SVB on Friday, which was the core of the Group’s business model.
According to a report from the Wall Street Journal, SVB Financial Group, which filed for chapter 11 bankruptcy protection in a New York bankruptcy court on Friday, has now become the largest bankruptcy filing that was the result of a bank failure since the collapse of Washington Mutual in 2008.
Silicon Valley Bank, which is now under the control of the Federal Deposit Insurance Corporation and operating as Silicon Valley Bridge Bank N.A., isn’t part of the chapter 11 filing.
The other businesses under the SVB Financial Group umbrella that are included in the bankruptcy filing include SVB Capital, an investment manager that oversees $9.5 billion of funds on behalf of third-party investors, and SVB Securities, an investment bank.
A statement released by the Group on Friday indicated that along with Silicon Valley Bank, SVB Private, a wealth management company previously owned by the parent company, is no longer affiliated with SVB Financial Group.
SVB Financial Group’s publicly traded stock, SIVB, has been halted since March 9 and carries over $3 billion in bond debt and almost $4 billion in preferred stock, which has fallen to distressed levels since the bank entered receivership.
The global banking industry has been in flux since last Friday when federal regulators seized SVB after more than $41 billion worth of funds were withdrawn from the institution in 24 hours, putting its balance sheet in the negative and threatening the livelihoods of numerous tech startups and venture capitalists.
Over the weekend, the U.S. government announced emergency measures and promised that all depositors would be made whole in an effort to reassure the markets. But that hasn’t stopped many from shuffling their funds to larger, more financially sound banks like JPMorgan, or seeking out other stores of wealth, such as gold and Bitcoin (BTC).
While the moves by the U.S. helped to calm matters somewhat on Monday, which led to a brief turnaround in stock prices, the banking contagion spread to European institutions, most notably Credit Suisse, which ultimately needed a $54 billion bail-out from the Swiss National Bank in order to shore up its books and prevent a collapse.
In the U.S., a group of 11 of the largest banks – including JPMorgan, Bank of America, and BNY Mellon – joined forces to offer an unsecured lifeline of $30 billion to the struggling First Republic Bank in order to forestall its demise.
Despite these efforts, the stock prices for both Credit Suisse (CS) and First Republic (FRC) continued to slide lower in trading on Friday as investors opted to take a safer route by pulling their funds due to suspicions that the threat has not been extinguished.
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The struggles of the global banking system have caught many flatfooted, as those who trusted the system to function properly and secure their wealth are now scrambling to locate reliable stores of wealth.
This has benefitted both gold and Bitcoin, which have regained their safe haven status in the eyes of many investors. Since March 8, the gold price has climbed 8.38% from $1,810 an ounce to its current price of $1,960, while Bitcoin has seen its price rally nearly 38% from a low of $19,700 on March 10 to a high of $27,185 in early trading on Friday.
With the banking contagion showing no signs of slowing down as it spreads across Europe and the smaller banks in the U.S., there’s a good chance that both cryptos and precious metals could continue to see upside potential as global citizens slowly lose faith in the banking system.