Brief thoughts on current banking crisis
Silicon Valley Bank (SVB), the 16th largest lender in America, collapsed on March 10th. The bank grew its deposit base too quickly and invested in long-term assets like government and mortgage bonds, which it could not sell without a loss when interest rates rose quickly. This forced it to raise fresh capital, which spooked depositors who withdrew their funds in just two days. The bank's misstep was lurking in plain sight, and regulators failed to intervene until it was too late. The incident highlights the importance of risk management and the potential dangers of taking on too much credit risk.
For more information on SVB, I recommend reading the article "Credit Risk Happens Fast – a SVB Postmortem" by Cullen Roche and watching the video "Silicon Valley Bailout" by Patrick Boyle .
On the European side of the Atlantic, another bank had to be rescued - Credit Suisse (CS) was forced to sell itself to its rival UBS for a significant discount compared to its valuation weeks or months ago. The story with CS is quite different than SVB's as the Swiss bank has been making bad decisions for years and has paid more than 10 billion € in fines in recent years. If SVB management was incompetent to hedge interest rate risk, CS management created a wrong culture in the bank where everyone took excessive risks hoping for a good year-end bonus.
Patrick Boyle has a great video again on the topic (where he also explains the wipe-out of AT1 bonds): The End of Credit Suisse
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Interesting content I consumed in the past weeks:
领英推荐
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A picture worth a thousand words:
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PS: As you might imagine, the content above is not investment advice, just my thinking on the current market environment. It is also not an invitation to buy or sell any financial (or crypto) instrument mentioned above or in the articles linked.