Markets
The failure of Silicon Valley Bank on 10 March 2023 became the second-largest bank failure in US history and sent shockwaves through global financial markets.
Updated
By Glen Elgin Editorial
On 10 March 2023, California banking regulators shut down Silicon Valley Bank (SVB) and placed it under the receivership of the Federal Deposit Insurance Corporation (FDIC). At the time of its failure, SVB held approximately USD 209 billion in assets, making it the second-largest bank failure in US history behind only Washington Mutual in 2008.
The collapse followed a bank run triggered by SVB's announcement on 8 March that it had sold a large portfolio of securities at a loss and intended to raise capital. Depositors, concentrated in the technology and venture capital sectors, attempted to withdraw approximately USD 42 billion in a single day, overwhelming the bank's liquidity.
The fallout was swift. On 12 March, US regulators announced a systemic risk exception guaranteeing all deposits at SVB and similarly failed Signature Bank, while the Federal Reserve introduced the Bank Term Funding Programme to provide additional liquidity to the banking system. In Europe, the Swiss government brokered an emergency acquisition of Credit Suisse by UBS on 19 March after a separate crisis of confidence.
The episode highlighted the vulnerability of banks holding large portfolios of long-dated government bonds in a rising interest rate environment. As the Federal Reserve had raised rates aggressively throughout 2022 and into 2023, the market value of these bonds fell, creating unrealised losses that became realised when banks were forced to sell.
For investors, the episode underscored the importance of understanding counterparty risk and the composition of financial institutions' balance sheets. Fixed-term investments and bank deposits carry different risk profiles, and investors should carefully review the terms and financial health of any institution they entrust with capital.
Source: Financial Times
This article is an original Glen Elgin Investments summary and analysis based on publicly reported facts. It does not reproduce the source article. Glen Elgin Investments is not the original publisher of the underlying news event.
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