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What happened to Silicon Valley Bank?

What happened to Silicon Valley Bank?

March 14, 2023

We are writing to share our perspectives on the recent financial market volatility that has transpired, particularly in banking industry, after the collapse of Silicon Valley Bank and Signature Bank and to offer guidance to investors amid the uncertainty emanating from these events.


Regulators took over and ultimately closed Silicon Valley Bank (SIVB) and Signature Bank (SBNY). These banks were faced with questions over their solvency in recent weeks due to highly concentrated customer bases in struggling industries, venture capital for SIVB and cryptocurrency for SBNY. In response, customers began pulling deposits from these banks creating a self-fulfilling prophecy and resulting in both banks being placed in receivership by the Federal Deposit Insurance Corporation (FDIC).

The failure of these banks has led to fear of systemic risk in the banking system and caused significant stress across the banking industry, especially among regional banks. In response, the FDIC, U.S. Treasury, and Federal Reserve announced a new Bank Term Funding Program (BTFP), which is designed to provide liquidity to banks facing elevated withdraws of customer deposits. The FDIC also has guaranteed all uninsured customer deposits at SIVB and SBNY in a sign that they are committed to protecting all depositors amid the current crisis. These
swiftly enacted measures should help ease the current systemic pressures facing the banking industry.


The failure of individual banks is not a new phenomenon and has happened countless times throughout history,which is why the FDIC was created nearly a century ago to handle these events in an orderly manner. SIVB and SBNY each were exposed to unique risks as their customer bases were highly concentrated in struggling industries, venture capital and technology start-ups for SIVB and cryptocurrency for SBNY.

However, despite the niche nature of and high concentration risk in these two banks, we believe the significant rise in interest rates over the past year was the ultimate catalyst leading to the demise of these banks. The Federal Reserve (Fed) has rapidly raised short-term interest rates over the past year in an effort to tame the highest level of consumer price inflation in over 40 years. This dramatic tightening in monetary policy from the Fed has exposed weaknesses in businesses that had become reliant on the historically low interest rates and accommodative monetary conditions in capital markets over the past decade, and especially after the pandemic. Last year, the impact of tighter monetary policy was most notably felt among weaker businesses in the  cryptocurrency and technology industries. We expect the impact to spread to weak companies in other industries this year, including banking, as the impact of higher interest rates and more restrictive monetary policy is typically realized with a long and variable lag.


We anticipate there will be other banks with weaker balance sheets that will also be challenged in the weeks and months ahead due to the pronounced tightening in monetary policy described above. However, we do not believe a widespread banking crisis is likely at this juncture for three primary reasons:

1. The industry in aggregate is entering this uncertain period with a relatively strong capital position.
2. Regulators have responded quickly to address the immediate crisis and have swiftly established measures to alleviate contagion risk.
3. The current challenges appear to be largely liquidity driven, which regulators are more adept at handling, compared to the credit-driven crisis of 2008 that was caused by widescale defaults in      mortgage loans.

Although we do not anticipate a banking crisis, we expect financial market volatility to remain elevated for the foreseeable future. The economic outlook remains uncertain because the impact of last year’s monetary policy tightening is likely only beginning to signal how significantly it will impact economic growth. The path ahead for monetary policy also remains increasingly uncertain as the Federal Reserve continues raising interest rates due to elevated inflation but is now contending with a potential slowdown in growth and increased risk in the banking industry.


Times like these are trying for investors as financial markets are in turmoil and pessimism has gained the upper hand. However, times of widespread market gloom have often preceded periods of significant opportunity for investors who remain disciplined and focused.

We encourage investors to consider the following to help navigate the uncertainty overhanging the economic and financial market environment:

Diversify Your Investment Portfolio

Diversification is a time-tested approach to managing risk for investors. In uncertain times like today, the avoiding over-concentrated exposure to a specific company, bank, or industry. The long-term outlook for diversified investment portfolios has also improved with the increase in interest rates over the past year as fixed income and cash investments currently offer the highest yields to investors in some time.

Focus on Resilience

We encourage investors to increase resilience in their portfolios due to the uncertain economic and financial market backdrop.

• In equity allocations, emphasize quality companies with strong balance sheets, steady earnings, and a history of growing their dividends.
• In fixed income allocations, increase credit quality as current yields are attractive on historically safer bond investments, such as U.S. Treasuries
• Consider incorporating dynamic risk mitigation strategies to systematically and unemotionally manage downside risk depending on your time horizon and risk tolerance.

Maintain Discipline

Don’t try to time the markets. History shows that investors are poor market timers; trying to sell assets at the peak or buy at the bottom is usually a losing game. History has also shown that some of the strongest gains for financial markets have come after periods of intense pain. Missing these market recoveries can have an outsized impact on the long-term growth of           investor portfolios.

Finally, engage with your financial advisor and stay focused on your long-term financial plan. During periods of heightened uncertainty, it is critical to avoid making short-term decisions driven by fear. Investing can be a challenging endeavor that requires enduring temporary pain to reap long-term reward, and your advisor is equipped with the perspective to help you focus on the long run.

Authored by the Freedom Capital Management Strategies® Investment Team | March 2023

Securities and Investment Advisory Services offered through Founders Financial Securities, LLC. Member FINRA, SIPC and Registered Investment
Advisor.This material contains the opinions of the author(s) but not necessarily those of Founders Financial Securities, LLC, and such opinions are subject to
change without notice. This material has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein
are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or
investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Investors should consult
their financial, tax and legal advisors before making investment decisions