The SVB Collapse, One Year Later: Taking Stock and Looking Ahead

As industry watchers assess the state of banking on the anniversary of Silicon Valley Bank’s collapse, Insider turned to Rick Parsons for a veteran risk manager’s take. Parsons, a former operational risk executive with Bank of America, wrote the RMA books “Broke: America’s Banking System” and  “Investing in Banks” and is a member of RMA’s Editorial Advisory Board. A year on, what are his thoughts on SVB’s demise and the ensuing liquidity crisis? 

The crisis had the potential to be much worse. With stock prices at multiple regional banks falling quickly last year, Parsons said there was “clearly a contagion as depositor fears resulted in the biggest banks getting even bigger as nervous depositors moved deposits.” Parsons said the FDIC’s move to cover uninsured deposits and the new Bank Term Funding Program (BTFP) were “essential to quell animal spirits.” 

“Absent those actions, no doubt more banks would have failed for liquidity reasons,” he said. Now, as planned, the Fed has stopped making new loans under the BTFP, which allowed banks to borrow using less-liquid long-term securities as collateral. Parsons said it was “too early to tell” what impact the end of BTFP may have. In general, he said, he remains wary about another crisis flaring up.   

In a technology-driven, social media-focused era, banking fundamentals still reign supreme. “There are absolute ‘truths’ in banking,” Parsons said, including the need for expertise in “how to govern and manage the balance between short- and long-term risk and reward/return.” The key lessons for bankers, Parsons said, were “liquidity cannot be taken for granted” and “interest rate risk matters.” Even amid rapid change, he said, it’s critical to remember the basics. Banking can be “hard and tedious work,” which benefits from focused consideration—especially in crisis scenarios. To avoid crisis in the first place, Parsons suggests that bankers should avoid the lure of “the shiny object of fast thinking,” turning instead to the calculating, strenuous, and deliberate “slow thinking” famously studied by Daniel Kahneman.   

Lingering pressures related to the liquidity crisis could fuel M&A. The high inflation coming out of the pandemic—and the rapid increase in interest rates it prompted—played a major role in the liquidity crisis. Higher rates made certain bank assets less valuable, pushed deposit rates higher, and are still squeezing net interest margins. In this challenging environment, Parsons believes, a growing number of banks may be “thinking about their exit strategy” through M&A or divestiture.  

What are your thoughts on the regional bank crisis? We’d love to hear from you at insider@rmahq.org.  

Look for additional perspectives on the anniversary of the liquidity crisis in coming editions of the Insider. For in-depth resources on liquidity risk and interest-rate risk, check out the latest RMA Risk Watch.