Silvergate Capital Corp.’s abrupt shutdown and SVB Financial Group’s hasty fundraising have sent US bank stocks diving and tongues wagging across the industry: Could this be the start of a much bigger problem?
The issue at both of the once-highflying California lenders was an unusually fickle base of depositors who yanked money quickly. But below that is a crack reaching across finance: Rising interest rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses. So if too many customers tap their deposits at once, it risks a vicious cycle.
Across the investing world, “people are asking who is the next one?” said Jens Nordvig, founder of market analytics and data intelligence companies Exante Data and Market Reader. “I am getting lots of questions about this from my clients.”
Indeed, amid deposit withdrawals at SVB, its chief executive officer urged customers on Thursday to “stay calm.”
The immediate risk for many banks may not be existential, according to analysts, but it could still be painful. Rather than facing a major run on deposits, banks will be forced to compete harder for them by offering higher interest payments to savers. That would erode what banks earn on lending, slashing earnings.
Small- and mid-sized banks, where funding is usually less diversified, may come under particular pressure, forcing them to sell more stock and dilute current investors.