Silicon Valley Bank’s Collapse: Sign of a Financial Storm?
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Silicon Valley Bank’s Collapse: Sign of a Financial Storm?

Photo by:   Mariia Shalabaieva, Unsplash
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Sofía Hanna By Sofía Hanna | Journalist and Industry Analyst - Tue, 03/21/2023 - 09:22

The collapse of Silicon Valley Bank (SVB) keeps affecting markets, which fell sharply as investors feared that the damage would spread. Not long after news that Californian regulators had closed SVB, state regulators closed New York-based Signature Bank and just a few days later stock at Swiss-based Credit Suisse fell sharply. While some fear further shocks in the financial sector, authorities from many countries, including Mexico, are working to assuage fears. 

A crisis of this size has not been seen since the global financial crisis of 2008. The bank failures of two major lenders set the US banking sector could be a sign of a deep storm, which is increasing concerns in Latin America and the rest of the world.

Mexican financial group MONEX reports that SVB’s collapse could be the tip of the iceberg of a complicated financial environment in 2023. Several similar "regional" financial companies could be hit by outflows if the demand for liquidity persists. Additionally, there could be a collapse of companies related to cryptocurrencies, such as Silvergate, potentially affecting many global startups that operate under a crypto payment scheme. "From our perspective, Regional Banks with greater exposure to Startups and Cryptocurrencies could face a similar environment to SVB, so information in the coming weeks will be key," reads MONEX’s report. 

MONEX and the Bank of Mexico (Banxico), however, have said the collapse will not affect Mexican institutions, since the sector is well capitalized and has excellent liquidity. It is worth noting that if the assets of the nine central Regional Banks (including SVB) are added together, they would be almost equivalent to the total assets of Citigroup. In particular, SVB's assets would be equal to 5.8% of JP Morgan's total assets, so speculations that it represented assets similar to a large global financial institution are unfounded, according to MONEX. 

"We do not expect recent events in the US banking system or international markets to have any relevant negative effects on Mexican banks. What happened in US banks was due to an atypical episode of bank runs that could have been caused by several factors, for example, inadequate management of interest rate risk," said Victoria Rodríguez Ceja, Governor, Banxico, during the inauguration of the 86th Banking Convention.

Latin American startups might be affected, according to Business Insider. While SVB’s troubles do not directly affect a specific startup, it can destabilize the entire startup ecosystem, especially in the short term. Startups could see skepticism from suppliers and financial institutions, which provide them with derivative products, deposit accounts, loans and financing. 

Photo by:   Mariia Shalabaieva, Unsplash

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