Introduction
After the significant Silicon Valley Bank financial crisis, the customers of the bank see daylight, as First Citizens Bank acquires SVB.
What is First Citizen Bank?
First Citizen Bank is an institution of finances and it operates in several states of the United States. The bank has built its reputation as a trusted financial partner for its clients over decades now. Even though they are known for years, they also have had to face major setbacks and have been the topic of many controversies earlier. We will see further in the blog about the implications of First Citizen Bank on the SVB crisis.
What is SVB Financial Crisis?
Silicon Valley Bank is a financial institution that is publicly traded and it has been providing banking and financial services to various companies over the years. The bank’s customers are mainly emerging firms and newly formed companies in the fields of technology and life sciences. Due to the pandemic just like the entire world, SVB too faced financial difficulties due to the economic impact of the COVID-19 pandemic. Hence, the bank’s loan portfolio also has been under pressure and the bank has to set aside more money to cover potential loan losses. This resulted in the company’s share price fall and it faced pressure from all its customers and investors. They demanded an improvement in its financial performance.
First Citizens Bank participated in the SVB financial crisis for the first time:
In 2020, First Citizens Bank acquired CIT Bank, which has a loan portfolio that includes loans to technology and life sciences companies. CIT Bank had a relationship with SVB Financial and after acquiring First Citizens Bank inherited this relationship. First Citizens Bank gained exposure to SVB Financial’s loan portfolio through its relationship with CIT Bank.
First Citizens Bank’s exposure to SVB Financial’s loan portfolio has raised concerns among investors and analysts. Some investors are concerned that First Citizens Bank will have to write off a significant portion of its loan portfolio due to financial difficulties at SVB Financial. This concern led to a drop in First Citizens Bank’s share price.
However, First Citizens Bank has reassured investors that they can control their exposure to SVB Financial’s loan book. The bank said it has conducted a thorough analysis of its loan portfolio and identified potential risks. The bank also said it has built up enough reserves to cover possible losses. The First Citizens Bank guarantee helped ease investor fears and stabilized its share price.
Significance of First Citizens Bank’s involvement in the SVB financial crisis:
the risks financial institutions face when exposed to other institutions’ loan portfolios is highlighted because of the First Citizens Bank’s involvement in the SVB financial crisis. In this case, SVB Financial’s loan portfolio was inherited by First Citizens Bank through the acquisition of CIT Bank. While the risk is manageable, it still causes concern for investors and analysts.
The Technology and life sciences sectors depend on funding from banks and other financial institutions to grow and expand. The SVB financial crisis also highlighted the risks, emerging companies face in the technology and life sciences sectors. However, as the SVB financial crisis showed, these companies are also vulnerable to economic shocks such as the COVID-19 pandemic.
Conclusion:
In summary, First Citizens Bank’s involvement in the SVB financial crisis highlights the risks financial institutions face when exposed to other institutions’ loan portfolios. Although First Citizens Bank was able to manage exposure to SVB Financial’s loan book, the crisis still affected the bank’s share price and investor confidence. The SVB financial crisis also highlighted the risks emerging companies face in the technology and life sciences sectors. Therefore, financial institutions should perform due diligence before entering into relationships with other institutions and ensure that they have appropriate risk management processes in place.
Read More: Federal Reserve’s Two-Day Meeting with regards to the Silicon Valley Bank (SVB) emergency