OPINION: US regional banks and Silicon Valley tech firms are nervously contemplating the likely cost of the Silicon Valley Bank collapse.
The implosion of Silicon Valley Bank has sent tremors through the US banking and technology sectors, as investors and bank depositors are rudely reminded of risks that have long been blithely overlooked.
Not surprisingly, SVB’s collapse has focused investors’ attention on the huge losses that the steep decline in bond prices has inflicted on the banks. It’s likely that major investors will insist that banks disclose the market value of their bonds, rather than how much it cost to buy them.And the anticipation that banks would be forced to reveal swingeing losses in their bond portfolios triggered the vicious sell-off in bank stocks last week.
. These larger institutions are considered safer because they can easily tap wholesale markets to cover any deposit outflows, and because the losses on their long-term bond holdings are relatively small compared to their overall size. While retail deposits tend to be sticky, corporates with larger deposits tend to be much quicker to move their money. And after the SVB failure, it would be near-impossible for any US corporate treasurer to justify keeping surplus funds in an account with a small lender, when they’re able to earn close to 5 per cent buying short-term US government debt.
The other problem is that although SVB’s loan portfolio looks to be in good shape, many venture capital firms will struggle to pay their staff, or their rent, if the bulk of their funds on deposits with the shuttered lender remain frozen.Already, some SVB customers are trying to sell their deposits at hefty discounts in a desperate attempt to raise cash.
But the vast bulk of SVB deposits are uninsured because its clients are overwhelmingly venture capital firms, and the start-ups they backed.
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