The collapse of Silicon Valley Bank (SVB) threatened to prompt a wider financial crisis and the authorities had no choice but to roll out emergency measures, says the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.

The observation from Nigel Green of deVere Group comes as US regulators said that from Monday the failed bank’s customers will have access to all their deposits, and that they have set up a new facility to give banks access to emergency funds.

The Federal Reserve has also taken steps to make it easier for banks to borrow from the central bank in emergencies.

Regulators on Friday took control of SVB — a key lender to startups across the United States since the 1980s — after a huge run on deposits left the medium-sized bank unable to stay afloat on its own.

Green says there are three key takeaways from the SVB’s collapse.

First, “The authorities will get some stick, especially from the shareholders of SVB investors. The asset value of the bank itself is zero, and there’s no chance of a government bailout for them.

“But the hands of the Fed, the Treasury and regulators, were forced into taking action in order to break the doom loop hitting the banking sector.

“A failure to act would have to be a dereliction of duty. If they hadn’t given customers access to their deposits from Monday, it would have resulted in a loss of confidence in the banking system, leading to a ‘run on the banks’ which, in turn, would have caused a liquidity crisis in the banking and broader financial system, potentially triggering a full-blown global financial crisis. The authorities couldn’t let this happen,” he explains.

Second, “It brings into question the Trump-era deregulation of banks. The decision to roll back Dodd-Frank’s ‘too big to fail’ rules, reducing both oversight and capital requirements, seems to have contributed to SVB’s collapse.

“It appears that the deregulation has allowed banks like SVB to take reckless risks. Now there needs to be a serious conversation about reversing the law to shore-up confidence and to avoid further collapses.”

Third, “It is now doubtful that the Fed will continue with its plan for aggressive interest rate hikes. The next hike was widely expected on March 22 following robust jobs data in January and February.

“We expect the stress in the banking sector, and the wider impact on confidence, now will give the central bank cause for pause on its rate hike program.

“Many will be asking: Was SVB – a major source of funding for US tech start-ups –  the first high profile victim of the Fed’s higher interest rates agenda?

The deVere CEO concludes: “The situation is moving quickly and despite the action taken by authorities, it isn’t over yet.

“Amongst other issues, there remain fears about contagion and there are real concerns that startups may be unable to pay their bills and salaries in coming days, venture investors may now find it hard to raise funds, and an already-pummelled sector could face a long rout.”

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments
You May Also Like

Chee Hong Tat's criticism of Dr Paul Tambyah: 3,404 non-S’porean doctors – 8% earning “low pay”?

Chee Hong Tat criticises Paul Tambyah I refer to the article “Chee…

Ivan Lim’s reappearance so soon after GE2020 result is an indication that PAP does not really care how public may feel

Ex-Peoples’ Action Party (PAP) general election candidate for Jurong Group Representative Constituency…

If the WP have breached their fiduciary duties, what about the PAP?

The high profile court case involving involving three Workers’ Party (WP) MPs…

What exactly does the Future Economy Council do?

Singapore seems to have an endless number of councils and bodies to…