SVB: Not a re-run of the GFC

16 March 2023
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Introduction


The collapse of Silicon Valley Bank (SVB) was quick – very quick. The turmoil started on Wednesday 8 March as SVB suffered a US$1.8bn loss on a forced USD$21bn bond liquidation from its available-for-sale bond portfolio; this left a large hole in its balance sheet. The bank then announced an intention to raise US$2.3bn in capital in an attempt to help repair the damage. However, concerns about the bank’s deteriorating capital position resulted in material deposit outflows on Thursday, and SVB’s share price collapsed. Trust in the bank – an essential thing in fractional reserve banking – began to wane and by the close of play on Friday it was all over.

Concerns have already emerged that the demise of SVB could be a lead indicator for another global financial crisis. We don’t think this is the case as the problems at SVB appear to be idiosyncratic although it is fair to say that the recently-revised regulatory framework in the US certainly didn’t help; one obvious contributing factor in the SVB collapse was the increase under the Trump administration of the threshold value of assets of an entity to be classified as a SIFI (Systemically Important Financial Institution) to $250bn, a number which in retrospect was much too high. In the 2010s, the tailoring of the regulatory framework was perceived as a move towards deregulation; perhaps the 2020s will see further tailoring as a readjustment according to the size, diversity and activity of each bank.
 

SVB: Not a re-run of the Global Financial Crisis (GFC)


 





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The information contained in this document is for guidance only and does not constitute financial advice.

The opinions are those of the author at the time of publication and are subject to change, without notice, at any time due to changes in market or economic conditions. Whilst  care  has  been  taken  in compiling  the  content  of  this  document, neither Sanlam nor any other person makes any guarantee, representation  or  warranty,  express  or implied as to its accuracy, completeness or fairness of the information and opinions contained in this document, which has been prepared in good faith, and to the fullest extent permissible under UK law. Some parts/sections of this document may been compiled from external sources.  Whilst these sources are believed  to  be  reliable,  the  information  has  not  been  independently  verified and is subject to material amendment, revision and updating, therefore no representation is made as to its accuracy or completeness. No reliance may be placed for any purpose whatsoever on the information, representations or opinions contained in this document nor shall it or any part of it form the basis of or act as an inducement to enter into any contract for any securities, and to the fullest extent permissible under UK law no liability is accepted or any such information, representations or opinions. The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes.

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10 March 2023
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