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| UBS Economists Suggests Silicon Valley Bank’s Collapse is not a Precursor to a Systemic Crisis in the US Banking System |
Economists at UBS have claimed that the current bank failures and government action in response to the collapse of Silicon Valley Bank are not a precursor to a systemic crisis in the US banking system. The collapse of Silicon Valley Bank, which has created turmoil in the US banking system, has prompted comparisons with the 2008 global financial crisis. However, UBS economists have pointed out that the US banking system is now better capitalized than it was prior to the 2008 crisis.
According to UBS, the industry’s Tier 1 risk-based capital ratio stood at 10.11% at the end of 2007, compared with 13.65% at the end of 2022. They also noted that Silicon Valley Bank was in some ways unique, with a high exposure to VC startups experiencing cash burn, leaving it vulnerable to deposit outflows. Furthermore, it had the highest ratio of securities to total assets in the industry, which meant that it was virtually the only US bank that had close to negative equity if mark-to-market losses were included.
US Regulators Step in to Make Depositors Whole after the Collapse of Silicon Valley Bank
Despite the collapse of Silicon Valley Bank, US regulators have been proactive in stepping in to make depositors whole. This is in stark contrast to the way regulators dealt with the collapse of Lehman Brothers in 2008. UBS economists have pointed out that the collapse of Silicon Valley Bank and the government action taken in response to it are not a precursor to a systemic crisis in the US banking system. However, they continue to monitor the situation closely.
In conclusion, UBS economists have suggested that the current bank failures and government action in response to the collapse of Silicon Valley Bank are not a precursor to a systemic crisis in the US banking system. The US banking system is now better capitalized than it was prior to the 2008 crisis. While Silicon Valley Bank was unique in some ways, US regulators have been proactive in stepping in to make depositors whole.
