Silicon Valley Bank – 4 / 5 观点
In the wake of Silicon Valley Bank (SVB) failing last week, the consensus appears to be this isn't a systemic banking sector problem of the type that led to the 2008/9 global financial crisis. But there are problems brewing.
For all of the talk of SVB being a tech sector-focused bank whose failure won't have wider ramifications, one factor in the demise of SVB US (not the UK bank) is cause for concern: the $2 billion losses it was carrying in its US Treasury stocks portfolio, which manifested when it had to sell them on an emergency basis to raise liquidity.
These were bonds that SVB US would have bought when interest rates were lower (say at least over 12 months ago) as part of its capital planning requirements. Back then they were seen as a prudent investment. But the hike in central bank interest rates in the last 12 months has seen the value of those older treasury bonds fall. Who wants to buy a bunch of 10-year treasury bonds bought 18 months ago paying 1% when you can buy new ones direct from the source today offering 4%? No-one - unless you sell them cheap, hence the losses made by SVB US.
It was reported by the US Federal Deposit Insurance Corporation (FDIC) that as at the end of 2022 the US banking sector alone is currently sitting on over $600 billion of losses in US Treasury stock (see the speech from the Chairman of the FDIC as recently as 3 March 2023). That is a very material part of the entire capital reserves of the US banking sector.
It's not all bad news though as bank balance sheets are much stronger now than in 2008/9 and banks more broadly are less likely to be forced into a sale like SVB US. The hope is that they can hold on to the bonds for their lifetime and redeem them at full value, but it does reduce regulatory capital.
So if this is a problem that needs addressing, what can be done? For those that aren’t able to wait out the market they may need to look for a merger with another bank that can carry them, but that will cause significant shareholder devaluation.
The latest news from the US is that a solution is being plotted by regulators and government to offer loans secured against long-term Treasury stock so that the 'SVBs' can borrow centrally rather than sell to raise liquidity. The plan is to stop contagion in the market, particularly amongst the smaller, regional banks. Such a programme seems necessary given where we or rather some banks are, but it's a worrying period for the banking sector and it's not out of the woods yet.
The Chair of the FDIC was prescient when he concluded on 3 March 2023 – just a week before the failure of SVB US – "… my purpose today has been to emphasize that, while banks continue to report strong performance and problem banks and failures are few, risks remain on the horizon … the downside risks are significant and will be a focus of supervisory attention by the FDIC".
Sadly, this was too late for SVB.
作者 Angus Miln, Emma Danks