[Events] Is the Australian bank likely to collapse as SVB did ？

The collapse of the Silicon Valley Bank in the US has echoes of the 2008 Global Financial Crisis and is likely to affect Australia, financial experts say. 

What has happened to Silicon Valley Bank？

SVB's woes stemmed from its tech customers ploughing money into the bank's deposit accounts, which tripled from $US62billion in 2019 to $US191billion by the end of 2021 as pandemic lockdowns buoyed technology companies.

Silicon Valley Bank invested this money in longer-dated US government bonds, with maturity dates 15 years or more into the future, during an era when economists were focused on deflation, amid concerns about weak economic growth in coming years.

The non-traditional bank, which didn't focus on home lending, saw the value of its bond assets plummet, however, as an inflation spike saw the US Federal Reserve's key interest rate - known as the federal funds rate - surge from zero to 0.25 per cent in March 2022 to 4.5 to 4.75 per cent now, via eight increases.

Is the Australian bank likely to collapse as SVB did ？

Digital Finance Analytics principal Martin North, who has worked in banking in the UK and Australia, said the effects of the SVB collapse were likely to be felt in Australia.

'We are at the very early stages of this rather than actually at the end of a mini crisis.'We are joined at the hip with the U.S. because a lot of our funding comes from international markets, particularly the U.S. and of course, our exchange rate is also very strongly linked to what happens in the the U.S.'

Then there are the Australian companies that had borrowed from SVB and opened accounts with them as a condition of obtaining venture capital. For example, Australian graphic design group Canva, Sydney-based online hotel booking group SiteMinder, employment site Freelancer and software company Xero and so on.

Some experts says SVB collapse can’t happen in Australian

Australian banks do not have significant amounts of their deposits sitting in Treasury securities, mortgage-backed securities and other liquid investments. Instead of sitting on deposits, Australian banks actually do what banks are supposed to do – lend money at a profit. They are intermediating between depositors and lenders.Australian banks have strong incentives to make sure they hedge the interest rate risk in their bank books.

What are your thoughts on the collapse of SVB?

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• Is the Australian bank likely to collapse as SVB did ？
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