Silicon Valley Bank failure is a text-book case of an asset liability mismatch. It’s roots are in poor risk management practices that zero interest rate decade in the US triggered.
Like an episode of a fast-paced crime thriller, the story of the 16th largest bank of America, Silicon Valley Bank (SVB), moved from a fifth-year-in-a-row Forbes best bank award to bank failure — all in the space of a month. Over the weekend of March 11 and 12, it looked as if the failure of SVB would spread to other banks, cause a global contagion and trigger another financial crisis. Signature Bank (SB) of New York was the next to be shut down on March 12. But the Sunday evening action by the US Treasury, Fed and Federal Deposit Insurance Corporation (FDIC) to protect SVB and SB depositors addressed the current panic attack. In fact, the expectation that the Fed will now have to reduce or pause its rate hike programme, might perversely give markets a breather.