Australian investors say the dramatic collapse of Silicon Valley Bank is unlikely to spark systemic problems for global banking markets, but its failure will rattle sharemarket confidence.
Local bank watchers also highlighted fundamental differences between SVB and Australia’s banking industry, arguing the combination of forces that brought down the US lender are highly specific.
SVB, which mainly served technology businesses, collapsed at the weekend, in the second largest US bank failure in US history. The final trigger for the sudden failure was a run as clients sought to withdraw billions in deposits, prompting the US government to step in over the weekend and take control of the lender.
On Monday morning, sharemarket fears surrounding the bank failure’s broader impacts appeared to abate significantly, after the US government said no depositors would lose money. In early trading, the ASX was 0.5 per cent lower.
Meanwhile, banking experts and fund managers highlighted specific characteristics of SVB, in particular its narrow focus on US technology businesses as clients; its large exposure to bonds; and differences in US and Australian banking regulation.
Principal at fund manager Alphinity Andrew Martin pointed SVB’s concentrated customer base in the tech sector, and the fact that an unusually large share of its assets were bonds, rather than bank loans. As squeezed tech businesses started withdrawing their deposits, SVB was forced to sell a $US21 billion bond portfolio at a $US1.8 billion loss last week.
Martin said this was a “very specific circumstance” that applied to SVB. “It’s incredibly hard to see – other than if it causes lower confidence in the system and people start running on other banks – how it’s a systemic issue on its own,” Martin said.
Portfolio manager at Tribeca Investment Partners, Jun Bei Liu, also said she did not think the collapse signalled broader problems in the world banking system, though she said the size of the collapse was “scary” and this had spooked the market late last week.
“I think the contagion effect is very, very limited. It seems like the problems are very company-specific,” Liu said.
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