Silicon Valley Bank and Signature Bank Exposure and Implications
Earlier this week our institutional investment consultants published a communique on the Silicon Valley Bank and Signature Bank Exposure and Implications. Below is a summary and key takeaways that provide additional insight.
Summary:
The demise of Silicon Valley Bank (SVB) appears to have been caused by a lack of diversification across its customer base, an asset/liability mismatch, and was further fueled by word-of-mouth (amplified by Twitter) throughout the closely knit tech sector. Managers we have heard from generally believe this is not a systemic issue that will have widespread repercussions, but we are continuing to closely monitor events.
Signature Bank was shut down by regulators on March 12. It was one of the biggest lenders to the crypto industry and marked the third-largest bank failure in U.S. history, ranking behind only SVB's shutdown and the collapse of Washington Mutual during the 2008 Global Financial Crisis.
Talking Points:
- Regional banks have come under pressure (though are bouncing back today), and the sector could be a determining factor in relative performance for small, SMID, and Midcap strategies (particularly value) for the quarter.
- The steps taken over the weekend by regulators allow all depositors at these two institutions access to funds and should bolster liquidity for other banks that may come under pressure.
- Guidance from the Federal Reserve suggests that “the capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient.”
Over the weekend, the Treasury, the Federal Reserve and FDIC jointly announced that it would allow depositors at SVB and Signature Bank access to deposits. This guarantee was not made beyond these two institutions. Additional funding will be made available through a new Bank Term Funding Program (BTFP), which provides loans of up to one year in length to banks and other eligible depository institutions. They must pledge U.S. Treasuries, agency debt and mortgage-backed securities, or other qualifying assets as collateral, but these assets will be valued at par. This measure should alleviate liquidity issues.
Please reach out if you have specific questions.
All the best,
Mitch Martin
Founder & CEO