2023 Bank Failure Update
2023 is off to a challenging start in the banking world with the second and third largest bank failures in U.S. history occurring within days of each other, followed a week later with the sudden collapse of one of Europe's most venerable banking institutions.
Silicon Valley Bank
While there have been many bank failures since 2008's financial crisis, the sudden collapse of Silicon Valley Bank has reverberated through the markets. In a nutshell, SVB was left undercapitalized due to overinvesting in U.S. Treasuries, a move that would have typically been seen as safe and conservative. However, as interest rates dramatically increased since March of 2022, the value of those investments declined. When it needed to raise capital, it was faced with selling at a loss. SVB's announcement on March 8, 2023 that it needed to raise $2.25 billion to shore up its balance sheet spooked depositors and led to a run on the bank with a staggering $42 billion being withdrawn by the next day. The following day, Friday March 10, 2023, the FDIC shuttered the bank and took over its remaining deposits.
SVB is the second largest bank failure in U.S. history. When the FDIC stepped in, it had $209 billion in assets. The largest (measured by inflation-adjusted assets) bank failure in U.S. history was Washington Mutual in 2008 with $386 billion in assets.
Regulators seized Signature Bank on March 13, 2023 after it suffered a run on deposits, likely driven by contagion fears linked to SVB. More than $10 billion in deposits was withdrawn before the FDIC stepped in. Signature Bank is the third largest bank failure in U.S. history with assets of $118 billion.
On March 19, 2023, the Swiss government announced that it had brokered a deal for UBS to purchase troubled Credit Suisse for $3.25 billion. The collapse followed several years of difficulties, culminating in $133 billion in withdrawals in 2022, mostly in Q4, and reported losses of $7.9 billion last year.
Is Deutsche Bank Next?
On the heels of Credit Suisse's demise, shares in Deutsche Bank, Germany's largest lender, fell sharply on fears about weaknesses in the global financial system. DB's stock has declined 25% in a month, and was down 14% at one point on March 24. Deutsche Bank is better capitalized than Credit Suisse was, and it made over $6 billion last year after taxes, but the risk of contagion and the power of negative sentiment has market watchers concerned.