US to Avoid Systemic Financial Crisis Following Silicon Valley Bank Bankruptcy

NEW YORK (Sputnik) - The US banking system will be in chaos in the next few days due to the bankruptcy of the Silicon Valley Bank (SVB), but this will not lead to a systemic crisis of the entire system, Kyle Shostak, director of the American investment company Navigator Principal Investors, told Sputnik.

The California Department of Financial Protection and Innovation announced on Friday that it was taking possession of SVB, citing inadequate liquidity and insolvency. It is reportedly the second-largest bank failure in US history.

"This is unlikely to result in a full-fledged banking crisis. It’s because of the size of this bank - it did not reach $250 billion in deposits, it was somewhere around $210-220 billion. Thus, it was 16th in the list of the largest banks in the US. So it was in the top 20, but wasn't the largest," Shostak told Sputnik commenting on the SVB bankruptcy.

Nonetheless, he admitted that banks of comparable size, such as the First Republic Bank, have already been affected and their shares have seriously sunk.

"You can say that the American banking system will, of course, be in chaos in the near future. This will especially affect banks in the top twenty. But in general, this will not cause a systemic crisis in the entire banking system," Shostak said.

He explained that SVB was focused on servicing high-tech companies from the Silicon Valley and crypto clients, with blockchain companies having been among its top clients.

According to Shostak, the SVB bankruptcy will worsen the situation of the crypto sector and will undermine the position of crypto-currencies, such as USDC, which has already fallen to a record low. The Silicon Valley Bank was one of the main partners of the USD Coin stablecoin, which is pegged to the US dollar.

"Another similar bank that will be under pressure is Signature Bank. Like First Republic Bank, it provides services for cryptocurrencies, converting them into dollars. They will be under a lot of pressure," Shostak told Sputnik.

He also pointed out that winemakers from California will suffer greatly because of the SVB bankruptcy since it was the main bank for the state’s wine companies.

US Council of Economic Advisers Chair Cecilia Rouse told reporters on Friday that US Treasury Secretary Janet Yellen was closely monitoring the situation concerning the Silicon Valley Bank after its failure.

Also on Friday, the Treasury Department announced that Yellen convened the leaders of the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency to discuss developments concerning the SVB. Yellen expressed full confidence in banking regulators to take appropriate actions in response to the situation, the Treasury Department said.