Chart 1: Silicon Valley Bank chart (created using trading view)
Recently, the failure of Silicon Valley Bank (SVB) made headlines, with 209 billion in assets. However, this is still relative smaller (especially after factoring inflation over the years) compared to Washington Mutual's collapse in 2008 with 434 billion in assets. SVB's specialization in tech and start-up sectors made it less diversified than other banks, leading to its inability to cope with higher-than-expected interest rates, which resulted in a need to raise 2.25 billion to improve its balance sheet. This led to a downward spiral, and start-up clients withdrew deposits, causing a bank run with 42 billion in withdrawals. To prevent a systemic panic, the Federal Reserve (Fed) devised a plan to backstop depositors, creating a new Bank Term Funding Program. The market reacted positively, with strong rallies in the Dow Jones and cryptocurrency prices.
It's important to note that Singapore banks, like DBS, UOB, and OCBC, have diversified lending to real estate, business, agriculture, and construction etc, making it unlikely for the contagion effect from SVB's collapse to spread to Singapore, for now. The Fed's plan has prevented other institutions from collapsing, leading to positive market reactions. However, future interest rate hikes and inflation rates must be considered to prevent systemic panic. Robust measures must be in place, and it's vital to monitor market data and inflation rates.
