The failure of Silicon Valley Bank is rattling markets and raising uncomfortable questions: Will it undermine the broader banking system and start a new meltdown?
The failure of Silicon Valley Bank is rattling markets and raising uncomfortable questions: Will it undermine the broader banking system and start a new meltdown?
Billionaire hedge fund manager Bill Ackman has compared SVB to Bear Stearns, the first lender to collapse at the start of the 2007-2008 global financial crisis.
“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails, and the dominoes continue to fall,” Ackman wrote on Twitter.
Yet most analysts say the implosion of SVB appears company-specific for now. A crucial lender to US technology startups, the bank came under pressure as Silicon Valley funding dried up, the result of an economic slowdown and rapidly rising interest rates.
“The reason [SVB is] in trouble is because they have exposure to particular industries,” said Jonas Goltermann, deputy chief markets economist at Capital Economics. Most other banks, he added, are more “diversified.”
There’s also less anxiety about the stability of the banking sector due to the significant regulatory reforms put in place after the crisis in 2008.
Still, SVB’s collapse reveals stresses created by the fastest jump in borrowing costs in decades. Central banks have raised interest rates to tame high inflation, but the pace of the increases has thrown up unexpected problems. And worries persist about further unintended consequences.
For example, banks that scooped up US Treasuries and other bonds when interest rates were very low are now sitting on losses as borrowing costs have risen and bond prices have gone down.
Bank stocks rattled
Founded in 1983, SVB provided financing for almost half of US venture-backed technology and health care companies.
