Mar 9, 2024 - Economy

The not-so-happy anniversary of SVB's meltdown

Illustration of two piggy banks facing in opposite directions overlaid on top of a dollar bill and a rectangle.

Illustration: Aïda Amer/Axios

Just days before the one-year mark of Silicon Valley Bank's collapse, New York Community Bancorp avoided the same fate, thanks to a $1 billion cash infusion led by former Treasury Secretary Steve Mnuchin.

Why it matters: Despite all the ink spilled over the need to strengthen American banks in the past year, we're only at the beginning.

Catch up quick: On March 8, 2023, Silicon Valley Bank announced it had raised $500 million from General Atlantic and had plans to raise $1.75 billion to help it plug a hole in its balance sheet created by rising interest rates.

  • Less than 48 hours later, regulators shut it down and took over.
  • By then, crypto-friendly bank Silvergate had also been shut down; two days later, New York's Signature Bank would see the same fate.
  • Before the end of the month, First Citizens had agreed to acquire SVB's core business, and on May 1, JP Morgan Chase said it was doing the same for First Republic.

Fast forward: Today, SVB says it's still the same bank customers loved, but with better risk management and some other tweaks, like smaller deposit requirements for startup borrowers, president Marc Cadieux told Axios last month.

  • 81% of SVB's clients from a year ago are still banking with SVB, according to Cadieux, with "thousands of them" returning after initially switching out.

The big picture: The Federal Reserve, which was SVB's regulator, has so far mostly focused its efforts on proposing rules regulating banks' balance sheets and liquidity.

  • This week, Fed Chair Jerome Powell told Washington lawmakers that the fiercely debated bank regulation proposal released last year — which includes capital requirement hikes — will have "broad and material changes."
  • Yet, even as its own reports show, one additional failure was in enforcing existing rules.

What they're saying: "We put a Band-Aid on the structural problem and act like we fixed it," Brookings Institution senior fellow Aaron Klein tells Axios.

The other side: "I think there was an inference that this was a regional bank crisis, but it really wasn't — those were niche banks," Citizens CEO Bruce Van Saun tells Axios. "The failure was is in governance and the business model."

Yes, but: Despite their flaws, SVB and FRB had businesses envied by some of their competitors.

  • It's no secret that First Citizens had been angling for years to become better established within North Carolina's tech scene.
  • Citizens launched a failed bid to acquire First Republic; even after it lost out, it still hired about 150 of FRB's private bankers, and is now gearing up to open three Bay Area offices.

The bottom line: As with all regulation, it'll be a long and slow road.

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