One thing that mortally scares me is run on any bank. Such a run on any bank could either be on account of a rumour or hearsay about its likely failure or for the genuine reason of the bank’s failure to honour its commitment towards its depositors and borrowers. In either scenario, outcome is horrendous.
As I understand, failure of SVB may not be attributable to any mismanagement of its affairs by the executive team or the board or to any fraudulent or corrupt practices prevailing there at. The failure happened due to the bank’s inability to honour its commitment by encashing its T bills or bonds due to pressure on MTM value in an increasing interest rate scenario.
As last heard, UK operations of SVB have since been taken over by HSBC ( for an enterprise value of £ 1) and Government has assured protection of depositors money. This is a great move and let’s fervently hope that larger US operations of SVB can also be rescued to protect the interests of depositors and scores of start ups that have been funded by SVB in its capacity of venture fund.
In one of my early posts. I had strongly suggested the need for consolidation in banking sector that results in emergence of 3-4 Public Sector and 2-3 private sector banks, all very large and SIBs ( systematically important banks) that are too big to be allowed to fail. This learning from SVB’s collapse should be imbibed by everyone and banking sector around the world should be strengthened ( further) , supervised ( more closely and proactively) and protected ( from failure or bankruptcy either due to mismanagement or market forces – both beyond the control of hapless bank customers). Let there be no further such instance anywhere in the world.
Arvind Arya blog 