Silicon Valley Bank's collapse triggers concern over potential 'bloodbath' and risk to broader markets

The sudden implosion of Silicon Valley Bank has fueled concerns over potential risk to the broader financial sector, The Washington Post reports.

The federal government seized control of the bank Friday, after SVB's announcement that it sold $21 billion in assets triggered a sell-off.

SVB, which mostly serves start-ups and venture capital investors, is the biggest financial institution to fail since Washington Mutual's collapse amid the Great Recession.

The bank, which reported around $209 billion in assets late last year, plays an integral role in the tech industry, but according to an Associated Press report, "there is little chance of contagion in the banking sector similar to the chaos in the months leading up to the Great Recession."

But SVB's collapse prompted the U.S. Department of Treasury to issue a statement Friday confirming that Treasury Secretary Janet L. Yellen convened a meeting with leaders from the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency to discuss the implications of the nation’s 16th largest bank going under.

"Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event," the statement said.

And some leading experts are nevertheless concerned.

"Silicon Valley Bank's rapid failure shocked the tech industry, prompting fears that the economic situation for the sector is worse than previously thought," The Post reports.

"The collapse is also strengthening calls from Wall Street analysts and investors that the Federal Reserve’s interest rate hikes are too aggressive and risk causing serious damage to the economy."

Christopher Whalen, who serves as chairman of Whalen Global Advisors, a New York-based firm, warned of a "bloodbath" in a statement to Reuters.

"I think the Fed badly miscalculated the impact of rising interest rates and so these are self-inflicted wounds and if we see more banks fail then the Fed is faced with a very tough situation which may force them to drop interest rates," Whalen told the news service.

"There could be a bloodbath next week as banks are in trouble, the short sellers are out there and they are going to attack every single bank, especially the smaller ones."

But not all financial experts hold such a grim view of the implications of the bank’s collapse.

Bank of America Analyst Ebrahim H. believes the selloff in bank stocks is likely "overdone," Reuters reports.

"We believe that the sharp sell-off in bank stocks yesterday was likely overdone as investors extrapolated idiosyncratic issues at individual banks to the broader banking sector," Poonawala told Reuters.

"However, the sell-off also highlights a (belated) realization among investors that higher for longer interest rates are negative for the sector's earnings per share outlook."