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.
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