Investors looked for vulnerabilities elsewhere and fled other banks where they perceived risks. The KBW Bank index has fallen more than 10 per cent over the past two days, its worst decline since March 2020.
Some banks rushed to reassure. US lenders First Republic Bank and Western Alliance issued statements to say liquidity and deposits remained strong, even as shares in both companies fell more than 14 per cent on Friday. Germany’s Commerzbank, meanwhile, said that it saw no “corresponding risk” to itself on a day that its shares fell 2.6 per cent.
“Contagion risk stemming from the collapse of SVB Financial triggered a sell now, ask questions later, backdrop for stocks,” said Adam Turnquist, chief technical strategist for LPL Financial. He noted that less than half of the companies in the Standard & Poor’s 500 were trading above their 200-day moving average, down sharply from 79 per cent in February.
Silicon Valley Financial Group was deeply woven into the fabric of the technology industry. It was a source of funding for startups and a popular provider of payroll processing and personal wealth management.
Regulatory data shows 89 per cent of the bank’s US$175 billion in deposits were uninsured as the end of 2022, and billions were stranded while regulators tried to find a buyer.
The fallout has hit a number of companies who did business with the bank. In the latest, Stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low after Circle, the US firm behind the coin, revealed that a chunk of the reserves backing it were held at Silicon Valley Bank.
The bank’s failure will likely increase pressures on companies to become profitable, ending the era in which investors were willing to withstand years of losses for the sake of expanding market share.
Bass and Ackman separately warned that the government would have to move quickly in resolving Silicon Valley Bank to assure depositors.
“The unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday,” Ackman wrote in a Tweet on Saturday.
“If they don’t do that by tomorrow we have a systemic problem,” Bass told Reuters in an interview.