The SVB Bank Collapse and Implications for Business

Last week, Silicon Valley Bank (SVB) was shuttered by US regulators after an insolvency scare prompted a run by depositors. At the time of publication, regulators are actively facilitating timely sales of SVB’s assets to other financial institutions with stronger balance sheets and liquidity. Federal regulators have said that all depositors of Silicon Valley Bank be able to access all of their money, as will a second bank, Signature Bank, was also closed. Additionally, the Fed said it would make additional funding available to banks to ensure they have “the ability to meet the needs of all depositors” through a new “Bank Term Funding Program.” This facility will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities, and other collateral.

While the Federal Deposit Insurance Corporation (FDIC) may be able to contain the fallout from these two failures, will this lead to a US or even global financial crisis? The failures are far short of the 2008 crisis that hit the core of the banking system. However, we posit that contagion risks remain material, and that further action to restore confidence by regulators to safeguard the financial system and companies to protect themselves from financial harm may be warranted to avoid a broader crisis.