SVB Decomposition: What’s the Next Step? | Forexlive


It took only 48 hours for Silicon Valley Bank (SVB) to become the second-worst bank failure in the United States, after the collapse of Washington Mutual in 2008. However, the context of the two could not be more different. SVB focused primarily on corporates, as it is a major player in liquidity for tech startups and venture capitalists in the environment, while Washington Mutual was a more retail-focused business.

This explains why SVB has an unbalanced portfolio in terms of the nature of their deposits, over 90% of which are uninsured deposits, meaning they exceed the FDIC insurance limit of $250,000. .

So that’s it the bank is in a hurry This was unusual for you, as it was with a particular bank that catered to a particular sector of clients. Perhaps the risks are extraordinary, but it is not simple.

To understand SVB’s supposed “sudden” decline, let’s look at some important information.

For starters, the warning signs are already there.

This Probably one of the best views on SVB’s core issues, and guess what? He was released on January 18. It completely covers the HMT issue that Adam also mentioned here. Basically, rising interest rates are becoming a problem for banks as they affect their bond portfolios.

A (probably black) Wall St Journal article from last year also notes that SVB is not the only player facing such tensions. There are a few big names, but their risk and credit management is probably not as bad as what is happening at SVB.

The proverb tends to say so food usually rises until something breaksand maybe that’s it something.

Now, SVB isn’t your typical “too big to fail” market player, so we’ll probably have some debate about whether lawmakers and politicians can really step in to save the day.

In fact, that’s where we are now.

In terms of direct exposure to clients, some big names are directly affected by SVB. If you want more details, you can view the personal information here. The list below is accurate as of March 10 (h/t Ben Hoban @wbhoban for doing a solid summary of some of the hottest stuff):

Roku is certainly one of the biggest names on the list, and a cash balance of around 26% is a big risk.

The real fear is how all this will affect related parties and how it will affect other companies that are not directly related to SVB. The potential ripple effect could be massive, but again, it all happens largely within this ecosystem of tech startups.

To be clear, this is not about the collapse of the economy’s core banking sector and financial system. That’s about right the bankruptcy of a particular bank in a rather niche ecosystem it shows only part of the economy.

Now, this does not mean that the risks associated with such a failure should be ignored. Always remember that markets, and in this case people, are fundamentally driven by emotions. And fear but it is very strong.

The harsh experience of the global financial crisis will rekindle many people over the weekend, and tomorrow people will turn to the FDIC to negotiate a sale of SVBs to allay fears of further contagion. widespread.

Now, logically, SVB does not have the status of causing the 2008-09 domino effect in the financial system, but the fear that he might have that potential. Basically, it’s a form of self-fulfillment, because exaggerated, sensational headlines spread panic and hysteria, and everyone’s reaction is to think “it’s Lehman Brothers again.”

So what’s the next step?

All eyes are on whether we’ll see another market player take over SVB, and that will happen on its own, meaning it will cover depositors (yes, including the uninsured) and the contagion scare will stop there.

I don’t think the FDIC and the Fed want to see tech startups go bankrupt en masse, and the best way to prevent something bad from happening would be to do just that.

I mean, there’s a very real possibility that SVB will die and have to sell off all of its assets for a haircut without covering all of its depositors. However, this is a worst-case scenario and one that lawmakers and policymakers actively want to avoid, as it could cause banks to look elsewhere as the fear continues to spread.

I think fear and panic will still be high in all markets next Monday, and it could continue for some time. This, of course, depends on the agreement to sell SVB, which may take some time next week.

From this point of view, topics are everything. And if nothing else, I think the markets will be more comfortable selling first and asking questions later until the calm is broken. But the moment something hits about the SVB deal, expect the markets to turn their heads and risk a bullish trade.

As usual at such times I always preach a mantra buy value, sell hysteria.

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