The SVB drama continues

Before you settle in for today’s Silicon Valley Bank (SVB) coverage, get caught up. Like any bingeable show these days, you gotta start at the first episode.

Driving the news: Following SVB’s sudden collapse, shares throughout the financial sector dropped, with other regional banks especially hard-hit. Over 100 of the 124 listed US banks with a market value of under US$5 billion were in the red, and the KBW Bank Index fell 11.66%.

Why it’s happening: Even though the feds stepped in to guarantee all SVB client funds (even if above the insurance ceiling of US$250,000), fears remain that regional banks in the current high-interest environment are susceptible to bank runs like the one that killed SBV.

  • But unlike in 2008, there’s no taxpayer money involved. Instead, deposits will be repaid from the Deposit Insurance Fund, which is to say, fees paid by other banks.

  • Still, criticism remains that the government should have taken an offer to buy SVB, just as the UK government found a buyer for SVB’s British wing.  

In Canada: The Office of the Superintendent of Financial Institutions, Canada’s highest financial regulator, took control of SVB’s Canadian wing. It plans to wind down operations and potentially sell it off. We can see the sign now: “FOR SALE: One bank, lightly used.”

Why it matters: While fears remain about the widespread toll on global markets and banking, experts believe Canada’s banking sector won’t be hugely affected due to SVB’s small presence here and the dominance of a few national banks (read: the Big Five).

  • In a report, RBC Capital Markets analyst Darko Mihelic wrote that SVB’s collapse was “idiosyncratic and unlikely to cause contagion to the broader financial system.”

  • Meanwhile, OSFI sought assurances from Canada’s Big Five banks that they weren’t heavily exposed. The Big Five were down only slightly (or even a ‘lil up) on the day.

Bottom line: While a total collapse of the global banking industry seems unlikely, the SVB debacle is potentially just the opening salvo to the disruption caused by all those rate hikes.