In what ways was Silicon Valley Bank distinct from a typical bank? Unlike traditional banks that primarily serve individuals and businesses with loans and investments in publicly traded bonds, Silicon Valley Bank’s client base consisted mostly of start-ups and private equity firms.
- The bank’s assets were concentrated in large deposits from roughly 37,000 clients, many in the early stages of development, with an average deposit size exceeding $4 million.
- Moreover, the bank’s asset portfolio had a higher percentage of bonds than loans.
These differences are essential in understanding why industry experts do not consider the specific risks that caused SVB’s collapse as a significant threat to the banking system.
The risk of contagion from Silicon Valley Bank’s collapse to other banks is considered low.
This is because most banks do not have the same concentrated deposit base or asset portfolio. While many banks have unrealized losses in their securities portfolio, estimated at $750 billion by a recent FDIC report, this is not enough to pose a significant threat to the industry and economy. While no bank is completely immune to rising interest rates, most banks are not as exposed to this pressure as SVB was. Market scrutiny will focus on banks with similar deposit bases and asset portfolios, including Silvergate Bank and Signature Bank, which have already failed. Regulators will face questions about why they did not identify these risks earlier. However, it’s important to note that these risks are not the same as those facing most banks.
