Sunday, March 12, 2023

SVB And Silvergate: A Storm In A Teacup(?)

The last few days saw the markets (especially in the United States) rattled by the bank collapses of Silicon Valley Bank (SVB) and Silvergate Capital (Silvergate). 

Both SVB and Silvergate are bona fide banking entities, and their simultaneous downfall within the space of a short time caused the S&P500 index (which SVB was a constituent, emphasis mine) to go down above 3% over the last two days, not to mention the tumbling of major bank stocks such as Bank of America and Citibank. All the major business news networks were having a field day (or two, or three) reporting on this, and there were fears that this event may be 2008/2009, part deux.


Being a rationale investor, I needed to know what was going on and had searched the internet to find out what really happened. Below is a point-by-point issues of the event:


  • Both banks were experiencing liquidity issues to service customer withdrawals, and this led to bank-runs due to (or as a result of) the lack of depository funds.
  • The major clientele for SVB were venture capital firms, startups and technology companies, whilst Silvergate’s customers were mainly from the cryptosphere.
  • Rising interest rates and the subsequent rise of short-term bond yields caused longer term bonds, which SVB was holding, to fall out of favour and in price.
  • The fall of cryptos during the last 18 months or so hastened the fall of Silvergate, which had concentrated on this business space since around 2018.
  • The Federal Deposit Insurance Corp (FDIC) had stepped in as receiver for SVB, and it will be business as usual from 13 March 2023.


The Bedokian’s Take


The SVB-Silvergate scenario, in my opinion, could not hold a candle to the scale of the contagion of 2008/2009, that time which affected the big banks, insurance and financial firms. Rather, I would classify it as a localized issue within two banks themselves, since the lack of depository funds sparked the bank run which accelerated their collapse. Furthermore, their customer bases were specific, so the subsequent ripple effect would probably be a ripple, and not a tsunami as seen in 2008/2009. The FDIC stepping in for SVB is a good sign that things would be going back to at least normal.


In other words, I would describe this as a storm in a teacup.


As with what I had always mentioned, such times are good to look out for bargains, especially bank and financial-related counters with strong fundamentals, or perhaps you may find other fundamentally good non-bank counters that had taken a tumble in the past few days.


Stay calm and stay invested.




The Bedokian is not directly vested in any of the mentioned listed entities.




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