April 13, 2023
Boston Business Journal recently published an article featuring Mark Williams, Master Lecturer of Finance, discussing takeaways from the Silicon Valley Bank collapse.
The Silicon Valley Bank (SVB) failure was the largest in the U.S. since 2008, and the second largest in U.S. history. SVB faced a cash crunch amid a tech slowdown. To raise money, the company sold $21 billion in securities at a loss, and was planning to sell $2.25 billion of its treasury stock and had borrowed $15 billion. These moves made customers nervous, and a bank run followed.
Williams suggests a contributing factor was an overreliance on hot money, or short-term investment opportunities. Williams also mentioned the bank was undercapitalized for its level of risk-taking, stating that, “It’s paramount that regional and smaller banks continue to send the reassuring message that they are well run, safe and sound and don’t gamble with depositor money.”
It is imperative that regulators in the U.S. and elsewhere take swift action to help restore this important, but sometimes fragile, depositor-bank relationship.
