Special Market Commentary: Equities fall after FDIC takeover of Silicon Valley Bank
Earlier today, regulators in the state of California took possession of Silicon Valley Bank (SVB), placing it under Federal Deposit Insurance Corporation (FDIC) receivership. The move capped a flurry of activity over the last few days. SVB came under market pressure when it experienced a mass exodus of depositor balances from its customer base, which was heavily concentrated with technology startups and venture capital investment firms.
The bank’s failure was the largest in the United States since 2008 and followed Thursday’s announcement by Silvergate Capital that it was voluntarily shutting down its banking subsidiary’s operations and liquidating its assets. Silvergate had significant lending ties to cryptocurrency firms and had been adversely impacted by negative industry developments and increased regulatory scrutiny.
While each of these developments resulted from specific risks inherent in their business models, markets have reacted sharply negatively. The financial sector has been among the harder hit, with several regional bank stocks among the largest losers in trading on Friday. Of particular concern is the strength of their respective balance sheets, where mark-to-market losses on Treasury holdings have resulted in write-downs as interest rates have risen. Shares of other financial institutions appear to be selling off indiscriminately because of these broader questions, not because of concerns specific to those firms.
At this point, it’s unclear what the near-term ramifications of these events will be, or whether additional financial institutions could come under pressure. As federally insured institutions, depositors should be protected for up to $250,000 in assets by the FDIC, but those with deposits in a failed bank over that threshold can (and likely will) experience some degree of loss. Regardless of the perceived strength of any bank, we strongly recommend against holding cash over the insured limit to mitigate the potential risk of loss.
We continue to monitor developments closely and are in communication with our contacts in the industry to evaluate what additional steps, if any, may be appropriate. If you have any questions or concerns, please reach out to your PMFA relationship manager or service team.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.
