【明報專訊】The collapse of the US Silicon Valley Bank (SVB) has sent shockwaves throughout the industry. Within only a few days, three US banks collapsed or resorted to Federal Reserve aid in succession. As for SVB's UK arm, HSBC Holdings swooped in as a "white knight" to rescue it.
One major cause of SVB's downfall was the tumbling of US bond prices following the Fed's hasty interest rate hikes to tame inflation, which quickly eroded the value of SVB's US bond portfolio. Liquidity shortage rendered SVB unable to cope with a bank run. The possibility of more small- and medium-sized banks facing similar problems cannot be ruled out. The question of whether the crisis will escalate requires close monitoring. Whether the incident will affect the Fed's interest rate policy is also a matter of concern.
HSBC's profits mainly come from the Greater China market, which includes Hong Kong. However, its acquisition of SVB's British arm this time comes across as a move to fulfil a "national mission" for the British government. Behind the symbolic acquisition cost of £1, it turns out that HSBC also has to inject an extra capital of £2 billion, meaning that it has to shoulder risks without any immediate benefit in sight. It is arguable whether such a deal is worthwhile.
SVB mainly served technology companies, start-ups and venture capital firms as America's 16th largest bank. There were no obvious signs prior to the bank's collapse, which came suddenly at astounding speed. In the middle of last week, after news came out that SVB had to raise funds to cover a significant loss, its stock price took a nosedive. As SVB was facing insolvency, the regulators ordered its closure last Friday (10 March), making it the largest bank failure in the US since the 2008 financial tsunami.
After the financial tsunami, the Fed adopted the "money printing" measure of quantitative easing to prop up the market. Silicon Valley start-ups benefited from the extremely low interest rate environment, and it was not too difficult for them to take out loans. After the outbreak of the pandemic in 2020, the Fed injected liquidity into the market even more aggressively. Silicon Valley start-ups obtained huge loans, and many of them were deposited into banks.
But in mid-2021, the US started reopening amid the pandemic. The inflationary pressure that followed was underestimated by the Fed at first. It only began to increase interest rates in haste in March last year. Silicon Valley start-ups began needing to withdraw money from their bank accounts continuously to meet all sorts of expenses. Meanwhile, SVB had previously invested a large sum of customer deposits in long-term US Treasury bonds, thinking that it was playing safe. However, the bonds ended up plummeting because of the rapid interest rate hikes, resulting in a sharp depreciation in the bank's asset prices. When its customers learnt that SVB was under funding pressure, they sped up withdrawing money from their accounts. The bank could not withstand the run and finally collapsed. It is still a mystery how many small- and medium-sized banks have similar modes of operation as SVB. There might be even more bank failures coming up.
SVB's subsidiary in the UK was also facing bankruptcy. After the joint intervention of the Bank of England and the UK Treasury, HSBC announced on Monday (13 March) that it will buy SVB UK at the symbolic cost of £1. But on top of that, foreign media has revealed that HSBC has to inject an estimated capital of at least £2 billion into SVB UK to keep it afloat. If SVB UK collapses, it will hurt the British technology industry and may also increase the liquidity risks of small UK banks. To put it bluntly, HSBC's acquisition is to serve the national interests of the UK.
After the successive bank failures in the US, investors speculate that the Fed will likely stop raising interest rates soon. Attention is on whether inflation will return. While curbing inflation, the Fed has to support economic growth and keep the banking system stable. A close eye should be kept on whether the future interest rate policy will frequently vacillate between these two goals.
明報社評 2023.03.15：矽谷銀行爆煲掀波瀾 匯控收購為英國利益
/ Glossary生字 /
nosedive：a sudden steep fall or drop; a situation where sth suddenly becomes worse or begins to fail
afloat：(of a business, etc.) having enough money to pay debts; able to survive
bluntly：in a very direct way, without trying to be polite or kind