Silicon Valley Bank collapses, is Canadian banking system vulnerable?
Canada might be immune from the effects of the quick collapse of Silicon Valley Bank (SVB), which has sent tremors through the international financial system. The startup-focused financial institution’s Toronto branch was momentarily shut down by Canada’s banking watchdog on Sunday night as Finance Minister Chrystia Freeland echoed her American counterparts in urging restraint in the face of market uncertainty and worries that contagion would spread to Canadian banks.
U.S. regulators were compelled to quickly liquidate California-based SVB on Friday as a result of a run on the bank that saw depositors remove billions of dollars out of panic. Late last week, Silvergate Capital, which had a reputation for its cryptocurrency-friendly operations, also announced its voluntary closure. On Sunday, US officials announced plans to shut down New York-based Signature Bank.
Shares in U.S. regional banks fell on Monday, driven primarily by significant losses at First Republic Bank, raising concerns that it would be the next one if a “contagion”—a phrase used to describe the spread of instability throughout the financial system—emerges.
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Is Canadas banking sector at risk?
When SVB’s corporate and individual clients were not permitted to access their assets, the risk of contagion in Canada has surely increased.
Statement from the Deputy Prime Minister and Minister of Finance regarding Silicon Valley Bank
Today, Chrystia Freeland, Deputy Prime Minister and Minister of Finance, issued the following statement:
“The Canadian government has been closely monitoring the situation with Silicon Valley Bank and I have been receiving regular updates.
“This evening I spoke with financial sector leaders and the Bank of Canada.
“We are in close contact with OSFI, which took action earlier this evening. Canada’s well-regulated banking system is sound and resilient.”
During the weekend, the bank’s Canadian subsidiary was temporarily taken under the authority of the Office of the Superintendent of Financial Institutions in Canada. The Canadian subsidiary does not have any corporate or personal deposit accounts, but it does have $864 million worth of commercial loans on its records.
Regulators stated on Sunday that New York-based Signature Bank had also failed and was being seized as a sign of how quickly the financial hemorrhage was taking place. The third-largest bank failure in American history, Signature Bank had assets of more than $110 billion. First Republic Bank, another troubled bank, disclosed on Sunday that access to money from the Federal Reserve and JPMorgan Chase had improved its financial standing.
Customers would make runs on other financial institutions in the coming days, according to some prominent Silicon Valley executives, if Washington did not rescue the failed bank. Other banks that serve technology companies, such as First Republic Bank and PacWest Bank, have seen their stock prices plummet in recent days.
For now Canadian Banks are trading at less than 5% loss on TSX.
Reassurance fro US President Joe Biden didn’t stop stocks from dropping
Despite statements from the US president claiming that the country’s financial system is secure, bank shares fell on Monday all across the world.
That comes following the failure of American lenders Silicon Valley Bank (SVB) and Signature Bank, which required government intervention to save consumer deposits.
Joseph Biden pledged to take “everything is necessary” to safeguard the financial system.
Investors worry that the impact could yet affect other lenders and cause severe declines in share values throughout the globe.
Commerzbank in Germany and Santander in Spain both had share price declines of more than 10% earlier on Monday.
Some smaller US banks saw even greater losses on Monday than their European counterparts, despite telling their clients that they had more than adequate liquidity to guard against shocks.
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Mr. Biden stated that when the government intervened to fully secure deposits made with Silicon Valley Bank, individuals and businesses will be able to access all of their funds as of Monday.
Many SVB clients in panic
Reassurance from US President did not calm SVB clients at all, many fearing potential loss of funds did what they felt is the most reasonable thing to do at the moment.
