Silicon Valley Bank’s (SVB) collapse has caused a ripple effect throughout the banking sector, prompting emergency measures from authorities to prevent a wider financial crisis.
Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory, asset management, and fintech organisations, noted three key takeaways from the collapse.
First, the authorities had no choice but to act in order to break the “doom loop” hitting the banking sector. Green believes a failure to act would have led to a loss of confidence in the banking system, causing a “run on the banks” and potentially triggering a global financial crisis.
Second, the collapse raises questions about the Trump-era deregulation of banks. The decision to roll back Dodd-Frank’s “too big to fail” rules seems to have allowed banks like SVB to take reckless risks.
There needs to be a serious conversation about reversing the law to shore up confidence and avoid further collapses.
Third, the collapse of SVB casts doubt on the Fed’s plan for aggressive interest rate hikes. The stress in the banking sector and its wider impact on confidence may cause the central bank to pause its rate hike program.
Despite the action taken by authorities, the situation is far from over. There are fears of contagion, with concerns that startups may be unable to pay their bills and salaries in the coming days, and venture investors may find it hard to raise funds. The collapse of SVB has pummeled an already struggling sector, which could face a long rout.
