The collapse of SVB bank (aka Silicon Valley Bank) in my view was mostly caused by mismanagement and could have been avoided. But it quickly turned into a bank run and the Federal Reserve stepped in shortly thereafter placing the bank in receivership. It was surprising given the size of the bank (second biggest to collapse) and the speed of the downfall. But the moves by the Fed are a sign of the system working not breaking down.
In the short-term there could be more shoes to drop with more volatility in the markets. The Fed is taking additional steps to help stop the spread to other areas and institutions (what you hear in the media as the risk of “contagion”).
There should be some good news and a silver lining here.
- The Fed should now ease up on raising rates and this tightening cycle, giving the markets some reprieve on that front.
- Looking back in the rear view mirror, failures like this are generally signs of a market bottom not a top (the biggest, Washington Mutual, was just months before the bottom of 2009)
- The volatility is giving a lift to bonds and helping diversified investment portfolios (which was sorely missing last year).
As for SVB, their depositors, which are focused on entrepreneurs, innovators, and tech, are key to our dynamic economy and are being made whole to continue their business, a positive for the economy. Hopefully a good buyer scoops them up and this has a happy ending.
We will continue to monitor the situation and provided any needed updates, and as always please reach out to us with any questions.
The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Lincoln Investment. The material presented is provided for informational purposes only. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss.