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It is learned that on March 10th local time, according to the statement of the Federal Deposit Insurance Corporation (FDIC), the California Department of Financial Protection and Innovation (DFPI) closed Silicon Valley Bank on the grounds of "insufficient liquidity and insolvency." Since then, Silicon Valley Bank, which was regarded as the financing pillar of the technology venture capital circle, collapsed, becoming the second largest bank bankruptcy case in US history after the 2008 financial crisis. Although the FDIC, which took over Silicon Valley Bank, announced that the bank's official checks would continue to be cashed and insured depositors would receive their deposits when Silicon Valley Bank's headquarters and all branches reopened on March 13, the news was still like a bolt from the blue, causing panic in global financial markets and bringing chain shocks to the cross-border circle. Cross-border payment links are affected Sellers’ funds are at risk!
It is learned that Silicon Valley Bank (SVB) was founded in 1983 and is the 16th largest bank in the United States. It mainly provides deposit and loan services and equity financing to venture capital institutions (VC) and technology companies. As of December 31, 2022, the bank's total assets were approximately US$209 billion , and the depositor savings under its account had exceeded US$175 billion . According to a previous statement from the bank, its clients include Canadian e-commerce company Shopify, US recruitment website ZipRecruiter, venture capital firm Andreessen Horowitz, etc. There is no doubt that the collapse of Silicon Valley Bank will affect many giants. For cross-border sellers, in addition to the funds originally deposited in Silicon Valley Bank, the most profound impact of this incident is the cross-border payment link: 1. Depositing funds on Silicon Valley Bank’s cross-border platform may delay payment Currently, some cross-border platforms that deposit funds with Silicon Valley Bank have been hit hard. On March 10, local time, sellers on the US e-commerce platform Etsy reported that their payment originally scheduled for that day was automatically postponed to Monday. That same evening, Etsy sent an email confirming that the reason for the delay in the seller's scheduled payment was that "the platform used SVB to issue funds to some sellers." It’s worth noting that while affected sellers said their new payment information date was showing as March 13, Etsy’s email did not mention a specific date. According to Etsy’s March 11 statement, payments may be delayed for several additional business days after Monday until the company can arrange an alternative payment solution through another partner. 2. Third-party payment platform funds that cooperate with Silicon Valley Bank are at risk Recently, there have been multiple reports in the cross-border circle that two well-known payment collection agencies in the cross-border e-commerce industry have been affected by the incident. Sources said that these collection agencies all cooperated with Silicon Valley Bank. After Silicon Valley Bank declared bankruptcy, one of the agencies issued a statement saying that about 20 million US dollars were deposited in Silicon Valley Bank. However, it is worth noting that another collection agency that was also revealed to have cooperation with Silicon Valley Bank stated that since the agency deposits most of its funds in global systemically important banks (GSIBs), customers' funds deposited in the agency will not be at risk due to the closure of Silicon Valley Bank. In any case, to sum up, the impact of Silicon Valley Bank’s bankruptcy on cross-border payments is self-evident. In view of the fact that the economic turmoil in the United States still exists, we would like to remind all cross-border sellers to plan early to reduce overseas capital risks, such as adopting diversified asset allocation and trying to "safely" the funds in overseas third-party payment channels. In addition, the subsequent developments after the Silicon Valley Bank bankruptcy are also worthy of sellers' attention. The Fed may slow down its rate hikes Is the US dollar about to fall?
Looking back at the Silicon Valley Bank's bankruptcy crisis, from March 9, when Silicon Valley Bank was exposed to a liquidity crisis, its stock price plummeted, triggering a large-scale bank run, and then announced its closure on March 10, all in just 30 hours, in stark contrast to its 30-year history. As for the reason for Silicon Valley Bank's "sudden death" , the banking team of the Guosen Securities Economic Research Institute pointed out that the problem of Silicon Valley Bank this time was that it absorbed a large amount of low-cost deposits during a period of loose liquidity and allocated long-term bond assets, resulting in a significant increase in potential interest rate risks. The Federal Reserve's interest rate hike exposed the problem. A chief macro analyst at China Merchants Securities also said that the "collapse" of the asset-liability strategy caused by the roller coaster changes in the U.S. risk-free interest rate since the epidemic was the direct cause of the Silicon Valley Bank incident. According to the analysis of experts, in addition to the bank's own implicit lack of liquidity, the Federal Reserve's crazy interest rate hike strategy to curb inflation is also the main reason for the bank's collapse. To this end, Bob Schwartz, senior economist at the Oxford Economics Institute, believes that the Federal Reserve will need to consider not only inflation at its next interest rate meeting, but also pay attention to the risk that its actions may exacerbate the financial crisis. Combined with the above situation, many sellers speculate that the bankruptcy of Silicon Valley Bank may cause the Federal Reserve to slow down the pace of interest rate hikes, thereby weakening the US dollar index and the exchange rate. As of today's opening, the real-time USD/RMB exchange rate was 6.8874, a slight decrease. Under this circumstance, many cross-border sellers are worried that subsequent exchange rate fluctuations will have a certain impact on them: "The Fed may have to adjust the pace of interest rate hikes." “Should we consider withdrawing more U.S. dollars to be safer?” At present, it remains unknown whether the Federal Reserve will slow down the pace of interest rate hikes, but industry insiders pointed out that the main reason for the collapse of Silicon Valley Bank was the exposure to liquidity risks in the context of the Federal Reserve's continued interest rate hikes to curb inflation, which may spread to other banks in the United States. Therefore, it is recommended that sellers convert part of their U.S. dollars into RMB without affecting their profits, and beware of the risk of subsequent exchange rate fluctuations. Recently, the US Treasury Department took measures to resolve the Silicon Valley Bank issue. On March 12, local time, the U.S. Treasury Department, the Federal Reserve Board and the Federal Deposit Insurance Corporation jointly issued a statement: they will assume the responsibility of providing additional funds to eligible depository institutions to help ensure that banks have the ability to meet the withdrawal needs of all depositors. Although many investors are still worried that the bankruptcy of Silicon Valley Bank will be the first domino to fall in the financial market, according to the analysis of experts from Guosen Securities Economic Research Institute and CITIC Securities Research Report, the current liquidity pressure of Silicon Valley Bank has not yet developed into a debt crisis, nor is it enough to trigger a financial tsunami. The gears of history are rolling forward. At this time of change, cross-border sellers can only plan carefully before taking action and seek victory in a stable manner.
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