Silicon Valley Bank may have been an outlier in the financial sector in many ways, but it is “too early to call the all-clear” on the sector, reckon ING analysts.
Fears over market contagion in the sector stem from SVB’s strategy of holding poorly valued long-dated bonds, which needed to be cashed out for significant losses to satisfy client withdrawals.
This problem might be replicated in other firms, sparking worries among investors and customers.
However, while most banks hold Treasury notes, SVB employed far more of its deposit base in long-dated bonds than in writing loans, meaning “it was more susceptible than most banks to the performance of its bond portfolio”, explained ING.
Banks holding a lower proportion of bonds to loans, which is most, should be far less susceptible to the issues that brought about SVB’s collapse.
Regional US banks are most at risk due to a flight to larger, perceptively safer financial institutions.
Phoenix-based Western Alliance Bancorporation and San Francisco-based First Republic Bank have both fallen over more than 60% in market value in Monday’s early trades.