SVB’s lightning-fast collapse surprises banking industry By Reuters

Pete Schroeder and Nupur Anand

WASHINGTON/NEW YORK (Reuters) – The rapid dissolution of SVB Financial Group has blinded a banking industry that had been stable for years.

Friday’s failure, the largest bank failure since the 2008 financial crisis, was a unique set of circumstances, but there were hidden risks affecting customers and employees that could highlight problems at other banks. I questioned my weaknesses.

Experts say the SVB’s predicament has resulted in the decline of smaller banks deemed well-capitalized after regulators forced banks to hold more capital in the aftermath of the 2008 crisis. It can erode confidence, tighten regulation, and make investors skeptical about its financial health.

Sheila Baer, ​​who led the Federal Deposit Insurance Corporation (FDIC) during the global financial crisis, said in an interview that bank watchdogs may now have large uninsured deposits and unrealized losses. He said it likely turned its attention to other banks. She contributed to the rapid collapse of SVB.

“These banks, which hold large amounts of institutional uninsured money, will be hot money to run if there is any sign of trouble,” Baer said.

A series of events led to the failure of SVB, which lost $1.8 billion by selling US Treasuries to cover its funding costs on hopes of rising interest rates. His SVB, which operated as Silicon Valley Bank, also said he had 89% of his $175 billion in deposits uninsured as of the end of 2022. The FDIC guarantees deposits up to $250,000.

Investors and customers are now nervously waiting to see if SVB Bank can find a buyer soon. During the 2008 financial crisis, Washington Mutual quickly found a buyer. But in 2009 he took about eight months for IndyMac.

The speed of the SVB crash blinded observers and stunned the market, wiping out more than $100 billion in the market value of US banks in two days.

“Banks are opaque, so you immediately say, ‘Wait a minute, how is this bank interconnected with another bank?'” says Myra Rodríguez Valladares, a financial risk consultant who trains bankers and regulators. “Investors and depositors don’t want to be the last ones to turn off the lights in their rooms, so they have to walk away.”

stricter rules

Some experts said the spillover effect on the rest of the banking sector may be limited. Large financial institutions have more diverse portfolios and deposit customers than SVB. SVB also relied heavily on the startup sector.

David Trainer, CEO of investment research firm New Constructs, said: “The deposit base of the big banks is much more diversified than his SVB, and the big banks are in good financial shape.”

Jason Ware, chief investment officer at Albion Financial Group, said although he has limited ties to the banking system as a whole, “this situation could have a direct impact on some regional banks. ‘ said.

Other experts say the failure could bolster regulatory efforts by U.S. regulators.

The banking sector survived the COVID-19 pandemic, in part thanks to stricter regulations that have been in place since 2008. However, some rules have been relaxed during President Donald Trump’s administration.

Easier rules for local banks could come under more scrutiny as regulators seek to ensure they have enough cushion to weather similar stresses, according to some regulators and industry sources. Highly sexual

Senator Elizabeth Warren, a prominent banking commentator, tweeted that the bank’s failures “underscore the need for strong rules to protect the financial system.”

One area of ​​particular interest may be large regional banks, which have seen deregulation under the Trump administration. U.S. banking regulators said in October they were considering new requirements for large regional banks. This includes holding more long-term debt to survive losses.

“I think the first thing the market will look at is the regional banks that haven’t diversified their loans,” said Greg Hartrich, head of U.S. deposit strategy at Nomura.

Another requirement that might get more attention, according to industry sources, was the growing need for banks to account for the market value of the securities they hold. The requirement currently applies only to banks with more than his $250 billion in assets, but could come to include other companies.

FDIC Chairman Martin Gruenberg on Monday warned bankers gathered in Washington that firms are facing higher levels of unrealized losses as rapidly rising interest rates are pushing down the value of long-term securities. .

“The good news on this issue is that banks are generally in a healthy financial position…On the other hand, unrealized losses undermine a bank’s future ability to meet unexpected liquidity needs. (This article has been amended to change the year of the financial crisis to 2008 in paragraph 2)