BaFin Takes Action against Silicon Valley Bank Germany Branch

by Damian Chmiel
  • BaFin issues regulatory updates regarding the German branch of Silicon Valley Bank.
  • The supervisor decided to ban the institution's further operations temporarily.
Regulator warning

The German Federal Financial Supervisory Authority, BaFin, joins the lengthening list of financial institutions that have presented their position concerning the collapse of Silicon Valley Bank (SVB).

The local branch of the bankrupt institution, Silicon Valley Bank Germany Branch, was banned from continuing to provide services due to the high risk of being unable to repay debts to lenders in the near future.

BaFin Orders German SVB to Close

According to the regulatory statement published on Monday, BaFin has forced the financial institution to close for business with its current customers with an immediate effect. However, the supervisor admitted that the decision regarding the ban and cessation of further operations in Germany was not final.

Silicon Valley Bank Germany Branch has been operating since 2018 and provides lending services to local consumers but does not provide deposit services. BaFin believes that the branch is not systemically important and its potential failure would not risk undermining the financial stability of the local monetary system.

"According to the institution's financial statements as at 31 December 2022, the total assets of the institution based in Frankfurt am Main amounted to 789.2 million euros," BaFin noted in a statement.

Earlier on Monday, the British Financial Conduct Authority (FCA ) presented its own statement regarding SVB UK's branch announcing that it is working closely with the Bank of England, the Government and other regulators to ensure safe passage through the collapse of SVB. Despite the recent developments, SVBUK retains its authorization from both the PRA and FCA and will continue to operate normally.

Additionally, the FCA has agreed to SVB's UK branch takeover by HSBC's domestic operating division. The transaction was made for a symbolic Β£1.

SVB Triggers Market Turmoil

The customer base of SVB was close-knit, mostly tech companies. Some of these customers started to pull out their money from the bank, starting a feedback loop. Deposits in the bank decreased from $198 billion at the end of March 2022 to $165 billion by the end of February 2023, which is a drop of 16 percent. In other words, it was a 'bank run' and caused the bank to fail.

In response to the problems of the institutions, the US Federal Deposit Insurance Corporation (FDIC) released a statement on 10 March 2023, outlining its plans to safeguard depositors who had invested in Silicon Valley Bank.

BaFin decided to temporarily halt operations at Silicon Valley Bank Germany Branch to ensure the proper handling of assets. These protective measures will remain in effect until the FDIC makes determinations about the business operations of Silicon Valley Bank, which have been transferred under its authority.

The consequences of the fallout are significant for the technology industry, given the bank's exclusive focus on that sector. Circle, the stablecoin issuer, held $3.3 billion, or 8 percent of the funds supporting the USDC, at Silicon Valley Bank.

In addition to Circle, several notable depositors were impacted by the ban. These included Roku, with $487 million, BlockFi, which had recently filed for bankruptcy , with $227 million, and Roblox, with $150 million, among others. On the other hand, a number of cryptocurrency firms, such as Binance, Tether, Paxos, and Gemini, have stated that they do not have any investments tied to the now-failed Silicon Valley Bank.

Furthermore, the collapse of SVB led to panic in the traditional stock market, particularly bank shares. Credit Suisse lost 11% on Monday morning and fell to historic lows. In contrast, the Dow Jones benchmark tracking bank listings fell to its lowest levels since October.

The German Federal Financial Supervisory Authority, BaFin, joins the lengthening list of financial institutions that have presented their position concerning the collapse of Silicon Valley Bank (SVB).

The local branch of the bankrupt institution, Silicon Valley Bank Germany Branch, was banned from continuing to provide services due to the high risk of being unable to repay debts to lenders in the near future.

BaFin Orders German SVB to Close

According to the regulatory statement published on Monday, BaFin has forced the financial institution to close for business with its current customers with an immediate effect. However, the supervisor admitted that the decision regarding the ban and cessation of further operations in Germany was not final.

Silicon Valley Bank Germany Branch has been operating since 2018 and provides lending services to local consumers but does not provide deposit services. BaFin believes that the branch is not systemically important and its potential failure would not risk undermining the financial stability of the local monetary system.

"According to the institution's financial statements as at 31 December 2022, the total assets of the institution based in Frankfurt am Main amounted to 789.2 million euros," BaFin noted in a statement.

Earlier on Monday, the British Financial Conduct Authority (FCA ) presented its own statement regarding SVB UK's branch announcing that it is working closely with the Bank of England, the Government and other regulators to ensure safe passage through the collapse of SVB. Despite the recent developments, SVBUK retains its authorization from both the PRA and FCA and will continue to operate normally.

Additionally, the FCA has agreed to SVB's UK branch takeover by HSBC's domestic operating division. The transaction was made for a symbolic Β£1.

SVB Triggers Market Turmoil

The customer base of SVB was close-knit, mostly tech companies. Some of these customers started to pull out their money from the bank, starting a feedback loop. Deposits in the bank decreased from $198 billion at the end of March 2022 to $165 billion by the end of February 2023, which is a drop of 16 percent. In other words, it was a 'bank run' and caused the bank to fail.

In response to the problems of the institutions, the US Federal Deposit Insurance Corporation (FDIC) released a statement on 10 March 2023, outlining its plans to safeguard depositors who had invested in Silicon Valley Bank.

BaFin decided to temporarily halt operations at Silicon Valley Bank Germany Branch to ensure the proper handling of assets. These protective measures will remain in effect until the FDIC makes determinations about the business operations of Silicon Valley Bank, which have been transferred under its authority.

The consequences of the fallout are significant for the technology industry, given the bank's exclusive focus on that sector. Circle, the stablecoin issuer, held $3.3 billion, or 8 percent of the funds supporting the USDC, at Silicon Valley Bank.

In addition to Circle, several notable depositors were impacted by the ban. These included Roku, with $487 million, BlockFi, which had recently filed for bankruptcy , with $227 million, and Roblox, with $150 million, among others. On the other hand, a number of cryptocurrency firms, such as Binance, Tether, Paxos, and Gemini, have stated that they do not have any investments tied to the now-failed Silicon Valley Bank.

Furthermore, the collapse of SVB led to panic in the traditional stock market, particularly bank shares. Credit Suisse lost 11% on Monday morning and fell to historic lows. In contrast, the Dow Jones benchmark tracking bank listings fell to its lowest levels since October.

About the Author: Damian Chmiel
Damian Chmiel
  • 1369 Articles
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About the Author: Damian Chmiel
Damian's adventure with financial markets began at the Cracow University of Economics, where he obtained his MA in finance and accounting. Starting from the retail trader perspective, he collaborated with brokerage houses and financial portals in Poland as an independent editor and content manager. His adventure with Finance Magnates began in 2016, where he is working as a business intelligence analyst.
  • 1369 Articles
  • 28 Followers

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