The SVB Fallout is Showing the World’s 5th-Largest Economy is Flailing As Easy Money Goes Extinct

Bloomberg News/FORTUNE/Yahoo! Finance (March 13, 2023) The worst thing to hit California this week was supposed to be the weather, with drenching rainstorms, flooding and the evacuation of thousands of residents. Then came the sudden collapse of Silicon Valley Bank, a key lender for California’s almighty tech industry and the second finance company to fail in the state in days. While US authorities deployed measures on Sunday to boost confidence in the wider banking system, the turmoil continued to engulf shares in other regional banks on Monday. San Francisco- based First Republic Bank sank by 78% and trading in the shares were halted for volatility, as news that it secured additional financing failed to calm investors. PacWest Bancorp, based in Beverly Hills, plunged by as much as 60%. In California, politicians and executives scrambled over the weekend to contain the broader fallout for the economy — the fifth-largest in the world — at a time nervousness had already been growing about its outlook. Fast-growing tech startups, like typical clients of Silicon Valley Bank, often rely on these letters to secure leases because they lack the credit of established blue chip companies and don’t want to tie up cash security deposits with landlords, said Alain R’bibo, a real estate attorney with Allen Matkins in Los Angeles. Now they’ll need new letters of credit, which would require transferring collateral to another bank or solvent institution. “Having a lease that goes from being secured to having a lease that’s now unsecured creates significant exposure for a landlord,” R’bibo said. Read More (subscription may be required)