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Will the SVB collapse trigger a global financial crisis?
Many factors, including the highly capable and competent LPS, indicate that the SVB bust will not have a significant impact on either the Indonesian or global financial system, so long as we take our lessons from the event.
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A man speaks on a mobile phone on March 10, 2023 as he walks past Silicon Valley Bank’s headquarters in Santa Clara, California. (AFP/Noah Berger)
T
he short answer to the titular question is most probably no. And that answer is not an invitation for complacency or carelessness. Investors can get too emotional and act irrationally and thus change the trajectory moving forward.
Still, there are many tidbits and lessons Indonesian regulators can take from the abrupt closure of Silicon Valley Bank (SVB).
The closure of SVB, with US$206 billion in assets, will hardly start a global financial crisis like in 2008 in the aftermath of Lehman Brothers’ collapse. In fact, SVB is rather a typical case of run on a bank that initially faced liquidity issues that rapidly became an issue of solvency, meaning that regulators are facing a “known known” and most likely have standard operating procedures in place to deal with it.
SVB was indeed the 16th biggest bank before it was transferred to the United States Federal Deposit Insurance Corporation (FDIC) for “burial”. But unlike in 2008, when regulators had to engage in some maneuvers to deal with failing shadow banks, the FDIC arguably has all the tools it needs now to arrange on orderly liquidation of a conventional bank like SVB.
Moreover, the systemic risk determination for SVB and Signature Bank, another bank that failed last week, has gained supermajority approval from the FDIC board (the Federal Reserve board and the Secretary of Treasury). This means that the normal limit of $250 per customer notwithstanding, all deposits at SVB and Signature are now fully insured. Thus, depositors in other banks have fewer reasons to panic.
Although SVB’s closure does not raise significant risk of a global crisis, Indonesian regulators can take some lessons from the headline-worthy event.
First, a bank should have a sufficiently diversified portfolio and customer base. At a glance, SVB actually had very conservative asset placement. Most of its portfolios were in US Treasury bonds, a safe haven by almost all standards.
