Investors who hold Canadian banks like TD Bank (TD), Royal Bank (RY), or Bank of Montreal (BMO) will wonder why they sold off hard last week. US Banks like Citigroup and Bank of America (BAC) also fell. The S&P 500’s (SPY) decline is not the only reason.
Silvergate (SI), a crypto-connected lender, liquidated the week before. California regulators closing Silicon Valley Bank (SIVB) on Friday is the real reason for the sell-off. Does SIVB matter?
Silicon Valley triggered a classic run on the banks when it needed to cover short-term losses by selling bonds and stock. In 2019, the firm took in billions in deposits. By 2022, it chased yield by buying mortgage-backed securities. When the Federal Reserve began its rate tightening cycle, MBS values fell.
Customers panicked after SIVB’s ill-timed cash raise. It could not meet short-term withdrawal obligations fast enough.
The U.S. Treasury and regulators will both assess the risk of SIVB’s abrupt shutdown. It will determine the systemic risk to the financial system. More banks face the same elevated risks. Markets do not know which one, so they sold the top banks, too.
Investors sold stocks now and will ask questions later. This creates a deep value buying opportunity. S
