Silicon Valley Bank ( SVB) collapse caused panic in many industries, including the crypto money sector, especially the banking sector.
Silicon Valley Bank The closure of ‘s reverberates worldwide. However, one of the allegations made was that one of the factors that triggered the bank’s collapse was the downgrade of Moody’s rating. So how true is this?
What Effect Could Moody’s Rating Have on SVB’s Collapse?
The closure of Silicon Valley Bank has been a process followed with concern all over the world. Banks in the US will hold an emergency meeting on the matter on Monday. In this process, the SEC and FDIC are trying to develop new methods to take precautions against possible bankruptcies.
The collapse of Silicon Valley Bank and the news that USDC issuer Circle was exposed to the tech lender had repercussions in the equity and crypto markets. While all these developments were taking place, what effect might Moody’s have had on the SVB when the bank’s downgrade was?
Moody’s Investors Service downgrades SVB Financial Group and its subsidiary Silicon Valley Bank. The call comes after the value of the bonds that the SVB has tied has dropped drastically due to high interest rates. Moody’s subsequently downgraded Silicon Valley Bank’s local currency long-term bank deposit rating from A1 to Caa2 and its issuer rating from Baa1 to C.
This news comes after Standard and Poors’ (S&P) Global downgraded the credit ratings of SVB Financial Group and Silicon Valley Bank to scrap, and also predicted that the bank would likely declare bankruptcy.
The SVB’s response to the possibility of a downgrade was to sell more than $20 billion in low-yield bonds to boost the value of its assets before the downgrade was made public. This drastically shortened that time as they had to do the necessary preparatory work to sign confidentiality agreements with the investors needed to commit to such a big deal.
The bank’s lawyers informed the bank that investors need at least 24 hours to digest the new financial projections and complete the sale, and unfortunately most investors need more time to meet the required time.
The plan was to take the proceeds from the sale and reinvest it in higher yielding assets. But his plans backfired.
However, Moody’s’ score reduction is not considered a factor in this context, but rather a result.
With the increased risk of bankruptcy, some investors and customers began withdrawing their deposits and seeking alternative banking options, potentially leading to further instability in the SVB’s financial system. This brought the inevitable end.
