SVB failure spells contagion but not systemic risk

Significance

The Federal Reserve (Fed) yesterday announced emergency measures to backstop banks facing short-term liquidity pressures, in order to forestall bank runs like those which overwhelmed SVB and Signature.

Impacts

• The Fed may pause its next rate hike to await more clarity on the extent of any contagion in the banking system.
• SVB’s demise will exacerbate the capital-access challenges facing its primary customers: tech venture capitalists and startups.
• Startups will lose key talent if they cannot pay wages, as employees will walk out or be laid off.
• Banks with large bond holdings will face investor scrutiny for mismatches between their funding costs and the rates earned on their assets.
• Tighter online regulations are making it harder for tech firms to generate revenue and keep compliance costs low.