The collapse of Silicon Valley Bank (SVB) threatened to prompt a wider financial crisis and the authorities had no choice but to roll out emergency measures, says the CEO of the financial advisory organization deVere Group in a statement shared with Finbold.
The observation from Nigel Green of deVere Group comes as US regulators said that from Monday, the failed bank’s customers would have access to all their deposits and that they have set up a new facility to give banks access to emergency funds. The Federal Reserve has also taken steps to make it easier for banks to borrow from the central bank in emergencies.
Three key takeaways from the SVB collapse
Green highlights three key takeaways from the collapse: firstly, the authorities were forced to act to break the doom loop hitting the banking sector, as a failure to act would have resulted in a loss of confidence and triggered a global financial crisis. He said:
“The authorities will get some stick, especially from the shareholders of SVB investors. The asset value of the bank itself is zero, and there’s no chance of a government bailout for them. But the hands of the Fed, the Treasury, and regulators, were forced into taking action in order to break the doom loop hitting the banking sector.”
Secondly, the deregulation of banks under the Trump administration has come under question, with the decision to roll back Dodd-Frank’s ‘too big to fail’ rules being seen as contributing to SVB’s collapse. According to the deVere CEO:
“It appears that the deregulation has allowed banks like SVB to take reckless risks. Now there needs to be a serious conversation about reversing the law to shore-up confidence and to avoid further collapses.”
Finally, the collapse of SVB is likely to give the Federal Reserve cause for a pause on its plan for aggressive interest rate hikes, with the stress in the banking sector potentially causing a wider impact on confidence.
“It is now doubtful that the Fed will continue with its plan for aggressive interest rate hikes. The next hike was widely expected on March 22 following robust jobs data in January and February. We expect the stress in the banking sector, and the wider impact on confidence now will give the central bank cause for pause on its rate hike program.” – said Mr. Green.
The CEO of deVere Group concludes that the situation is moving quickly and fears about contagion and other concerns about the wider financial sector remain.
There are fears about contagion and the possibility that startups may be unable to meet their financial obligations, investors may struggle to raise funds, and the already struggling sector could face a prolonged decline.