Could the failure of Silicon Valley Bank and Signature Bank be the start of a domino effect of failing financial system entities and the beginning of a new financial crisis?
Have credit procedures and risk management processes really improved after the global financial crisis of 2007-2009, since major banks are still failing, which may cause severe turbulence on the financial markets, including capital markets, securities markets and, consequently, may also deepen the already developing economic crises?
On Monday 13.03.2023, the situation shaping the capital markets was influenced by the developing news in many media that one of the largest banks in the USA, i.e. Silicon Valley Bank, had declared bankruptcy. The collapsed SVB bank was taken over by the state-owned Federal Deposit Insurance Corporation (FDIC, Federal Deposit Guarantee Corporation) on Friday 10.03.2023 after the bank was unable to pay out money to customers withdrawing their deposits in a panic. SVB is the 16th largest bank in the US and has served a significant proportion of Silicon Valley startups, companies and funds. Silicon Valley Bank was the largest collapse in the banking sector since the 2008 Lehman Brothers collapse and the onset of the 2007-2009 global financial crisis. At the end of 2022, SVB had more than $209 billion in assets. But the collapse of Silicon Valley Bank (SVB) is not the end of the problems in the financial markets. On Monday 13.03.2023, news hit the media that another bank is failing. Customers worried about their deposits also called many of their other banks to check that their money was safe. This second spectacular failure in the financial system is New York's Signature Bank, which was shut down by state market regulators on Sunday. According to the Reuters news agency, this is the third largest bank failure in US history. It is also another spectacular bankruptcy of a major financial institution overseas in just a few days. New York-based Signature Bank is a US financial institution that, at the end of 2022, had customer deposits worth almost USD 89 billion and USD 110.36 billion in assets. According to published official figures, almost a quarter of these funds came from cryptocurrencies. This raises a key issue to be resolved regarding the extent to which credit procedures and the credit risk management process at financial institutions have improved over the last 15 years, i.e. after the onset of the 2007-2009 global financial crisis. I have described the determinants and root factors of the 2007-2009 global financial crisis, including the mistakes made in credit risk management, in my articles on this issue, which I posted on my profile of this Research Gate portal after publication. I would like to invite those conducting research on this issue to join me in research collaboration on issues and factors for improving the credit risk management process in financial institutions.
In view of the above, I would like to address the following questions to the esteemed community of scholars and researchers:
Could the failure of Silicon Valley Bank and Signature Bank be the beginning of a domino effect of failing financial system entities and the start of a new financial crisis?
Have credit procedures and risk management processes really improved after the global financial crisis of 2007-2009, since major banks are still failing, which may cause severe turbulence on the financial markets, including capital markets, securities markets and, consequently, may also aggravate the already developing economic crises?
What do you think about this topic?
What is your opinion on this subject?
Please respond,
I invite you all to discuss,
Thank you very much,
Warm regards,
Dariusz Prokopowicz
Not really. The business is complex world and you just cant predict how it will fare after 5 years. Even standard commodities companies fail. You cant model the foul intents of the promoters . In other words it is really not possible to make a one solution model to do risk assessment . If some disruptive innovation comes in market best companies fail.
Noting special, You may say safe institutions become safer and risky institutions become riskier. Safe institutions already have good risk management systems and they worked to further improve them to keep their "safe flagship". However, the risky business models of some institutions let them make more money during normal times so they don't want to lose their profit/business. Regulators also let it go due to political pressure.
The credit procedures and the risk management process was not really the reason for the 2008 global crisis but it was because of financial wastage management (i.e. doing business with the customers who have already defaulted on their financial obligation). Though credit procedure and risk management process was not reason for the 2008 global crisis, risk management and credit procedure got a lot of attention across world post 2008 crisis. Various new techniques and courses related to the credit procedure and risk management got prominence across the world. It won't be judicious for me to comment on effectiveness of those techniques and courses.
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