As you may have seen in the news over the weekend, the collapse of Silicon Valley Bank (SVB) signifies the largest failure of a bank since 2008.
SVB grew to become the 16th largest bank in the US and the bank’s clients were primarily businesses in the tech industry across the world.
The demise of SVB was predicated by its investment in long-dated US government bonds. Traditionally seen as longer-term and safe investments, bonds are susceptible to changes in value when interest rates rise or fall. Unfortunately for SVB, the recent significant increases in interest rates caused a major reduction in the value of these bonds.
With tech companies particularly affected by the tough economic conditions over the past 12 months and incurring a high cash burn-rate, SVB were forced to sell these bonds at a loss to cover deposit outflows.
Following a public announcement for an intended capital raise last week to cover these losses, this triggered a ‘run’ on the bank and its unfortunate collapse.
The risk of contagion is minimal. Regulators in the US have since guaranteed all depositors’ funds and this morning HSBC have announced that they are acquiring SVB UK.
The approach to risk management for Capital International Bank remains incredibly prudent, our Bank is not exposed to any long-dated investments and maintains significant levels of liquidity. Our fiduciary banking counterparties continue to report strong results and a robust approach to managing risk and liquidity.
If you have any questions, our Team are always on hand to discuss these with you.
Disclaimer: The views, thoughts and opinions expressed within this article are those of the authors and not those of any company within the Capital International (CIG) and as such are neither given nor endorsed by CIG. Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Capital International Group of companies to buy or sell any product or security or to make a bank deposit.
Capital International Bank Limited is a wholly owned subsidiary of Capital International Group Limited (www.capital-iom.com), a privately owned financial services group based in the Isle of Man. Capital International Bank Limited is licensed by the Isle of Man Financial Services Authority and operates as a non-retail, restricted deposit taker under a Class 1 (2) licence. Deposits are not covered by the Isle of Man Depositors’ Compensation Scheme and terms and conditions apply.