And of course, as with all these international financial issues, if you are a Singaporean with a bank account, you will want to know: 1) Does this affect me? and 2) Should I be worried?
The sort of good news is, you need not worry.
Maybe.
This video provides a clear explanation.
In summary,
1) During low interests rates, low investment environment, Banks invested in safe secure, low interest securities like T-bills for the long term (to get better interest rates).
2) For banks in niche markets (like Crypto, or Tech start-ups), their customers in the last few years were cash strapped and had to draw on their case reserves in the banks. These customers made huge withdrawals that the banks had not anticipated.
3) To keep enough cash on hand to meet this demand, the banks sold off their long term T-bills. But because on the last 12 months or so, interest rates have risen as the govt tried to tame inflation, the low interest T-bills could only be sold at a huge discount and this meant that the banks liquidating their T-bills made a huge loss.
4) In compliance with reporting requirements, the banks reported their losses, and this worried their depositors, who made a run on the bank to withdraw their funds, which led to the banks having to liquidate even more investments at a loss to meet depositors' demand.
5) This was not sustainable, and so the bank collapsed.
The latest development is that First Republic Bank (US), received $30 billion is a "Bank Rescue" by the biggest US Banks to ensure that First Republic is able to meet possible depositors' demands."...the banks saw saving First Republic as ultimately in their best interests, rather than risk a widening panic that might engulf more of them".
If you search YouTube for explanations and someone to blame for this banking crisis, you may find one or more of the following explanations or blames.
The watering down of the Dodd-Frank Act. In 2010, two years after the 2008 financial crisis, the Dodd-Frank Act was passed that required banks with $50b to $250b in deposits to submit to a more stringent stress test regularly to ensure that these banks are able to meet financial stresses. However, in 2018, Trump signed a bill rescinding the requirement for regular stress-test. If the Dodd-Frank Act had still applied to SVB, perhaps its weakness could have been caught earlier and rectified?
Venture-Capitalists such as Peter Thiel advised his clients to withdraw their funds from SVB, which they did. To the tune of $42 billion in deposits. About a quarter of SVB's deposit. This run on the bank did not help. If influential leaders did not stoke the fears of depositors, would the bank run have occurred? The Banking system depends on Trust. The banks do not have 100% of deposits on hand sitting idly in the bank, waiting to be withdrawn on demand. Banks would be investing these deposits, some in long term safe investments that are less liquid, and some in short term, higher interest yielding, more liquid, but possible more risky investments. A lack of trust call by influential market leaders is an irresponsible move which can undermined even a sound bank or banking system.
But, did the banks take on too much unwarranted risks? In the low interest rate environment of the early part of the pandemic, when there were fewer investment opportunities, and lower yields, banks were hard pressed to find viable, safe, investment vehicles for their funds. Silicon Valley Bank in particular were focused on servicing the Tech sector, and prior to the pandemic, their deposits grew - very fast, as Venture Capitalists poured their funds into tech start-ups in the low-interest environment (they had no alternative investments that offered better returns). So these tech start-ups were flushed with cash and deposited their millions (and even billions) into SVB, growing SVB. SVB then had the problem of finding investment channels for these funds. They settled on long term, low interest, safe Treasury Bills. However, when funding for start-ups dried up in the higher interest rate environment (VCs could get better returns from other investments and abandoned Start-ups), the start-ups experienced a cash crunch and had to draw down on their cash reserves specifically in SVB. But SVB did not anticipate this, and their investments were in long-term, low interest T-bills that have lost value in the current high interest environment, and they did not have the cash on hand to meet the depositors' demands.
So, would this affect Singapore? There are still ripples and reverberations from these bank collapse - even Credit Suisse, and First Republic. But, Singapore does not have a bank that specialises in tech start-ups, so the specific conditions leading to an unusually large withdrawal of deposits from a bank is not likely to occur with Singapore Banks. Secondly, Singapore banks are not deregulated, so banks have to comply with rules for keeping X% of funds available for immediate withdrawal. Such funds are not earning interests so banks will typically, keep this reserve as low as possible. This also means that if there is a bank run, and banks are unable to meet the demand, the govt will most likely backstop the bank to assure depositors. Most likely, because the reserve ratio was set by the govt.
[19 Mar append/amendment:
The easy-money era may be over for startups
Silicon Valley/HBO via Giphy
Silicon Valley Bank’s collapse is dragging down startups’ futures with it, like the Scar to their Mufasa. And when the founders of young companies catch their breath from the initial chaos, they’ll be confronted with a harsh reality: The days of easily securing bank loans while looking out over the Pride Lands are over.
The gist: The version of Silicon Valley Bank that now exists after regulators stepped in can give startups their money back, but not the services they’ve come to rely on.
SVB was rooted deep into the startup ecosystem
SVB was relatively small—it had 40,000 customers compared to JPMorgan Chase’s 66 million—but it claimed to bank nearly half of all US tech and life sciences startups last year, including household names like Etsy, Roblox, and Roku. The cultural cachet of having a relationship with SVB as a venture-backed startup was like sporting a New Yorker tote at Whole Foods.
But the reason its loss will leave such a gaping hole in the startup community isn’t that it was cool to name-drop at a networking event. Because the bank was created in 1983 specifically to cater to venture-backed startups, it helped them in ways that most banks can’t—or won’t.
SVB was known for super-chill loans: SVB would offer loans to startups more readily than large banks, basing the loans on a company’s ability to raise venture capital funds, not to turn a profit. SVB was also known for being flexible—even if startups breached their loan terms.
“They were the easiest money for an unprofitable, early stage to midstage tech company,” Irving Investors founder Jeremy Abelson told The Information.
Plus, it had a personalized touch: Even small startups received hand-holding services, such as guidance on how to set up their financial infrastructure. Its bankers personally called startups when they secured their first rounds of funding, according to The Information.
Now, startups might have to deal with big-league banks
Several founders who previously banked with SVB told Bloomberg that they’re moving their money to Chase and Bank of America, banks considered “too big to fail.”
Startups’ experience at big banks won’t be like their time at SVB. Not only is Jamie Dimon unlikely to call a startup to congratulate them on their Series A, but big banks are also expected to be more tight-fisted with their loans. The Office of the Comptroller of the Currency, a regulator that oversees large US banks, disapproves of loans to companies that are further out than one year from profitability, according to Crunchbase.
The loss of SVB is therefore expected to have a chilling effect on loans to venture-backed startups, aka “venture debt,” which SVB handed out more of than any other bank.
Zoom out: While on the surface, less money flowing to startups = bad, some think SVB’s collapse could be a net-positive reckoning for the startup community. Loans from SVB may have been too easy to procure, leading to reckless spending. “I think we all would be better off burning a lot less cash,” Chris Herndon, founder of SVB-banked startup The Guild, told The Information.—JW ]
[20 Mar update: UBS takes over troubled Credit Suisse.
BERN: UBS will take over its troubled Swiss rival Credit Suisse for US$3.23 billion following crunch talks on Sunday (Mar 19) aimed at stopping the stricken bank from triggering a wider international banking crisis.
The government said the deal involving Switzerland's biggest bank taking over the second-largest, was vital to prevent irreparable economic turmoil spreading throughout the country and beyond...]
20 April Video - why SVB is not like other banks:
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