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Silicon Valley Bank’s status as a key player for venture capital-backed companies in technology and related industries appears to have played a major role in its decline, according to JP Morgan Asset Management. Michael Chembales, the company’s chairman of market and investment strategy, said in a note to clients over the weekend that SVB’s heavy reliance on corporate (rather than retail) deposits and a high percentage of assets held in loans and securities make it unusually risky compared to others. banks. “SIVB was in a league of its own: high levels of loans plus securities as a percentage of deposits and very low reliance on stickier retail deposits as a share of total deposits. Bottom line: SIVB has carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls in the event of interest rate hikes, deposit outflows and forced asset sales,” Cembales said. The chart below shows how unique Silicon Valley really was…see it (ticker: SIVB) in the bottom right corner away from other regional banks: Concentration of deposits appeared to be fueling the bank run. $42 billion worth of withdrawals were initiated on Thursday, according to a regulators report. Several venture capitalists advised their portfolio companies to withdraw funds from the bank. Another concern for SVB is that corporate accounts are likely to exceed the $250,000 threshold for insurance from the Federal Deposit Insurance Corporation. In banks with a higher percentage of retail depositors, these depositors will have less motivation to withdraw money from there, even if the bank is in trouble. Although SVB was a unique bank, there are some fears that these concerns could spread to other regional banks. Federal regulators are looking into options, including the possible sale of SVBs to support uninsured deposits, to allay those concerns. The chart shows that there are other banks with a low percentage of retail depositors or a high level of loans plus securities, but Silicon Valley Back was extraordinarily risky on both fronts.
Credit: www.cnbc.com /
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