Failure of SVB Financial
The collapse of Silicon Valley Bank (SVB) has led to a continent-wide selloff in financial stocks, resulting in a loss of CAD 19.7 billion ($14.2 billion) in value from Canada’s top banks over the last four days. Some of the country’s largest lenders, including Bank of Nova Scotia, Bank of Montreal, and Toronto-Dominion Bank, fell by more than 2% on Friday. Canada’s main stock benchmark, the S&P/Toronto Stock Exchange Composite Index, slumped more than the S&P 500 as the biggest US bank failure in over a decade roiled the market.
The failure of SVB has impacted Canadian banks, particularly those with exposure to the US regional banking system. Large Canadian banks have acquired regional US banks in recent years, which has increased their exposure to the fallout from SVB’s failure. The Canadian banks have strong liquidity positions, which have been defended by analysts, but TD, the largest shareholder in Charles Schwab, and is in the process of acquiring First Horizon Corp, where deposits have fallen by 10% over the past two quarters. Canadian financial giant TD may seek to renegotiate terms, according to CIBC Capital Markets analyst Paul Holden.
The fallout from the collapse of SVB has impacted Shopify, which was among the biggest decliners in Toronto. Shopify was listed as a client of SVB Financial Group, which had opened a Canadian office in 2019. Deposits in the US fell 2% in the latter half of last year, while Canadian deposits rose 4%, according to Holden. Risk premiums for US regional banks have increased materially, he added.
Will SVB failure cause another financial crisis like Lehman brothers
Analysts say it is unlikely that the failure of Silicon Valley Bank will cause another financial crisis like Lehman Brothers. While both failures are significant events in the financial sector, the circumstances surrounding them are different.
Lehman Brothers was a global investment bank with a significant presence in the housing market. Its collapse in 2008 triggered a chain reaction that led to a global financial crisis, which affected economies around the world.
Silicon Valley Bank, on the other hand, is a regional bank that primarily serves the technology industry. Its failure is not likely to have the same widespread impact on the financial system as Lehman Brothers did.
Since 2008 the financial industry and regulators have implemented various reforms and regulations since the 2008 crisis to strengthen the financial system and prevent a repeat of the events that led to the crisis.