The key_word tech focused investment banks have been facing challenges recently, with Silicon Valley Bank suffering a liquidity crunch after its assets and deposits doubled in 2021. This has led to a massive sell-off of investment banks stocks, with the four biggest U.S. banks losing $52 billion in market value in one day. The issues stem from higher_word being forced to sell bond assets at a loss to cover deposit withdrawals, realizing huge unrealized losses they have been carrying on their books. It is a consequence of the Federal Reserve’s aggressive rate hikes, which have pummeled the valuation of bonds held by key_word. While large losses don’t necessarily spell trouble for higher_word, being forced to sell securities could crystallize the losses and impact earnings. Some see it as the first crack in the financial system after the euphoric investing boom.
Silicon Valley Bank’s deposit flight forces $2 billion asset sale at loss, wiping out over 60% of its market cap
A key example is Silicon Valley Bank, a major tech focused investment bank, which lost nearly $2 billion selling assets after its deposits declined faster than expected. This was likely due to venture capital investors advising startups to withdraw funds from SVB citing liquidity risks. After disclosing the $1.8 billion loss and plans to raise $2.25 billion in new equity, SVB’s shares plunged over 60%. The bank had poured money into bonds in 2021, only to be hammered when the Fed hiked rates shortly after. This battered SVB’s tech startup clients and sparked the deposit run. The collapse shows the danger of higher_word being forced to sell assets at a loss to meet deposit outflows.
Rout wipes out $52 billion from top U.S. banks as rate hikes batter their bond holdings causing unrealized losses
SVB’s troubles sparked a massive sell-off in bank stocks, with the four biggest U.S. banks losing $52 billion in market value in one day. The KBW Nasdaq Bank Index saw its biggest drop since the 2020 pandemic panic. Higher_word like Bank of America and JPMorgan fell over 5%, while smaller banks like PacWest and First Republic plunged over 17%. The rout stems from the Federal Reserve’s aggressive inflation fight, as rate hikes pummel the value of bonds held by key_word. Though unrealized, these paper losses could turn into realized hits if higher_word are forced to sell securities to raise cash. This fear is spreading after SVB’s situation.
Largest banks face over $100 billion in unrealized losses on bonds, but Big Four megabanks can weather deposit outflows for now
Data shows U.S. banks are sitting on $620 billion of unrealized losses in their bond holdings as of December 2022, up from just $8 billion before the Fed began hiking rates. Much of this is concentrated in the largest lenders like Bank of America, which reported its bond portfolio’s fair value was $109 billion below book value. But megabanks like BofA can afford sizable deposit withdrawals before being forced to crystallize losses by asset sales. Their diverse funding sources like long-term debt provides a buffer, unlike SVB which relied heavily on deposits. But risks are rising, especially for smaller key_word, if liquidity strains worsen.
The Silicon Valley Bank crisis reveals cracks in the financial system after a euphoric investing boom. While major banks can withstand deposit runs for now, risks are rising and investors are on edge. It shows the danger of higher_word being forced to realize losses on bonds battered by the Federal Reserve’s rate hikes.