The collapse of Silicon Valley Bank has sent further shockwaves around the global financial sector, after tens of billions was wiped from the stock market value of some of the world’s largest banks and credit ratings agency Moody’s put several mid-sized institutions on notice for a downgrade.
Since fears first emerged over the stability of Silicon Valley Bank on Thursday, a staggering $46 billion was wiped from the market caps of the six biggest US banks by the time markets closed on Wall Street last night, while euro swap spreads, an indicator of financial market stress, rose to their highest in over five months.
The UK’s biggest banks have also taken a hit, with the top four losing a combined £22.4 billion in market value since Friday morning.
HSBC took the biggest knock in the UK, after shareholders did not take kindly to the news the bank had agreed to buy the UK arm of Silicon Valley Bank for £1. Its shares dropped 4.5% yesterday and dipped a further 1.3% to 560p this morning.
Bill Ackman, the billionaire investor behind FTSE 100 constituent Pershing Square Holdings, took to Twitter last night to warn there could be “one bank failure after the next” without government intervention in the sector.
“Consumers now understand that when a bank stock collapses, it is only a matter of days before the bank fails due to liquidity demands from their depositors,” he said.
“Until this problem is solved, our banking system is at risk.
“The alternative is one bank failure after the next. The weakest three have already fallen. The market is already telling you who is number four.”
The swathes of deposit withdrawals in the US have shone a spotlight over the fragility of many mid-tier banking institutions, who lack the same degree of regulatory oversight and lack government backing for deposits.
Moody’s downgraded its rating of collapsed bank Signature to C overnight after it was closed by regulators in New York on Sunday, while a further six midsized banks including First Republic and Western Alliance were put under review for a downgrade.
Ian Manocha, CEO of Gresham Technologies, which supplies data control and cash management software to financial institutions, said the banking jitters unearthed questions over the US government’s interpretation of the Basel accords, a set of banking standards agreed globally in the wake of the 2008 financial crash.
“The US’s application of Basel agreements gave an inordinate level of flexibility to certain tiers of institutions,” he said.
“The applications of the rules for those community institutions was relaxed and we’ve not had that same selective flexibility in Europe and in the UK. That explains why Silicon Valley Bank got away with having no chief risk officer for eight months.”
While Silicon Valley Bank’s UK arm was stabilised yesterday, it remains unclear whether its customers will return to banking with the beleaguered institution after venture capital businesses urged tech startups to open new accounts elsewhere to diversify risk. London-listed software firm Eagle Eye said it had at least £3 million deposited with SVB US, as well as a £5 million loan facility with SVB UK, prior to its collapse on Friday. The firm told the Standard its future relationship with the bank was under review.
