The sudden fall in the shares of Silicon Valley Bank (SVB) has caused panic in the global equity market and also dragged banking-related stocks to collapse as well.
This happens because SVB is no longer able to bear the 'burden' from the effects of aggressive interest rate increases by the Federal Reserve (Fed).
The crisis began after the tech start-up's main lender launched a $2.25 billion stock sale to shore up its finances.
This is to cover the $1.8 billion loss it suffered after selling $21 billion of bonds from its portfolio.
As a result of high US interest rates, the bonds owned by SVB only yielded an average return of 1.79%, well below the current 10-year treasury yield of around 3.9%.
The move has sparked panic among depositors prompting a massive withdrawal of deposits from the bank.
As a result, Silicon Valley shares saw their biggest daily drop as they plunged more than 60% on Thursday and the decline continued on Friday, resulting in trading being suspended at the opening of the New York session.
Not only that, the crisis also had an impact on other banking stocks, which saw the 4 largest US banks wipe $50 billion off their market value in a single day on Thursday.
Even the European stock market also felt the need to trade lower on Friday.
In the latest development, the US financial regulator was forced to shut down SVB and control its deposits. This indirectly makes it the biggest bank failure since the 2008 global financial crisis.
The streak from this crisis has also raised investor concerns about whether other banks will take the same steps as SVB amid rising US interest rates.
