The future for Silicon Valley Bank could one of two scenarios: a merger and recapitalisation or the start of a series of bank runs.
- Silicon Valley Bank - could go one of two ways, according to those who have seen banks collapse before. Both scenarios result in losses.
Many of the bank’s venture capital customers have been failing to raise their own new funding, which has also led to a depletion of SVB’s deposit base, forcing the bank to liquidate $US21 billion in safe assets, such as low yielding US Treasuries, at a loss. “Initially, we thought this could have been a short-term blip where SVP depositors lose access to their deposits only for a short period of time, like a few days, while a merger or restructure is put in place.”
“For the most part, those bonds are not considered to be impaired and will still pay out the full $100 at maturity. They just can’t be sold for par right now. Thus, banks have unrealised losses on their portfolio of securities. As long as banks don’t need to sell those securities to pay off deposit withdrawals, the losses wouldn’t need to be realised,” he said.The second, pessimistic, scenario is that other banks have to liquidate similar portfolios of bonds.
“If all of the depositors stay the course, they’re probably collectively better off and the bank will be fine. But it might be in each depositor’s individual best interest to withdraw its money at least down to the $250,000 insurance limit.”
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