The speed of the SVB crash blindsided observers and stunned markets,wiping out more than US$100 billion ($152 billion) in market value for US banks in just two days.
“Banks are opaque,so immediately,we all go ‘wait a minute,how interconnected is this bank to another one?’” said Mayra Rodríguez Valladares,a financial risk consultant who trains bankers and regulators. “Investors and depositors do not want to be the last ones turning out the lights in the room,so they have to leave.”
Tougher rules
Several experts said any ripple effects in the rest of the banking sector may be limited. Larger institutions have more diverse portfolios and deposit clientele than SVB did. SVB also had a high level of reliance on the start-up sector.
“We do not believe there is contagion risk for the rest of the banking sector,” said David Trainer,chief executive of New Constructs,an investment research firm. “The deposit base from the major banks is much more diversified than SVB and the big banks are in good financial health.”
Jason Ware,chief investment officer at Albion Financial Group,said linkages to the overall banking system are limited but “this situation has perhaps implications for select regional banks with some direct exposure.”
Other experts said the failure could bolster efforts by US regulators to tighten regulations.
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The banking sector steered through the COVID-19 pandemic,thanks in part to tougher rules put in place following the global financial crisis in 2008. However,during president Donald Trump’s administration,some rules were eased. Those easier rules for regional banks are likely to come under scrutiny as watchdogs look to ensure they too have enough cushion to weather similar stresses,some regulatory and industry sources said.
US banking regulators said in October they were considering new requirements on large regional banks,including holding more long-term debt to weather losses.
“It does feel like the first place that the market is going to look is to regional banks that don’t have loan diversification,” said Greg Hertrich,head of US depository strategies at Nomura.
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Another requirement that could garner more attention,industry sources said,was expanding which banks are required to account for the market value of held securities. That requirement only applies to banks with more than US$250 billion ($380 billion) in assets,but could grow to include other firms.
On Monday,FDIC Chairman Martin Gruenberg warned bankers gathered in Washington that companies are facing higher levels of unrealised losses,as rapid interest rate increases have driven down the value of longer-term securities.
“The good news about this issue is that banks are generally in a strong financial condition … On the other hand,unrealised losses weaken a bank’s future ability to meet unexpected liquidity needs,” said Gruenberg,three days before SVB announced its need to raise funds.
– Reuters
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