Few risks in Canada after the collapse of the Silicon Valley Bank
Silicon Valley Bank customers wait outside the offices of this bankrupt financial institution in California.
While regulators scramble to juggle sudden collapse of Silicon Valley Bank, analysts say risk of fallout on Canadian financial sector limited.
Not only should the [Silicon Valley Bank] bankruptcy not have strong negative consequences for our banks, but this crisis should in fact be seen as further vindication of the Canadian banking model, analyst Meny argued on Monday. Grauman of Scotiabank in a note to clients highlighting the stability of Canada's large diversified banks.
U.S. regulators shuttered the California bank on Friday after a bank run that saw its depositors, concerned about its solvency, rush to withdraw their money at the same time.
Over the week -end, US authorities announced measures to protect the financial system, including ensuring that all deposits in the bank would be honored. They promised the same for Signature Bank, which was forced to close by regulators on Sunday.
In Canada, the Superintendent of Financial Institutions announced on Sunday evening that he had taken control of the assets of the Canadian branch of Silicon Valley Bank while insisting on the limited nature of this crisis and on the fact that the bank did not hold any commercial deposits or individual in Canada.
This situation is the result of circumstances that are unique to this bank in the United States, said the Superintendent of Financial Institutions, Peter Routledge, in a press release.< /p>
Silicon Valley Bank was heavily focused on lending to emerging tech and biotech companies, which saw massive growth in the first two years of the pandemic before the sector pulled back. Tens of thousands of tech workers have been laid off in recent months at companies large and small amid the downturn.
In addition, this bank's investment portfolio was overly reliant on long-term fixed-rate bonds, which fell in value as interest rates rose. That scenario isn't really a concern for Canadian banks, Grauman said. In reality, the largest US banks as well as the Canadian and [Latin American] banks we cover have much smaller securities assets on a relative basis.
Canadian banks also have much less exposure to the tech sector, said National Bank analyst Gabriel Dechaine, pointing out that financial disclosures from banks that break down this sector in their reports have a 1% exposure. at 3% in their loan books.
He added, however, that any broader spillover into the California market from Silicon Valley Bank could expose BMO to greater risk due to its recent acquisition of Bank of the West. The Royal Bank of Canada has also had a presence in this state since its acquisition of the City National in 2015.
It is unclear how the crisis will affect the imminent acquisition by the TD Bank Group of the American bank First Horizon, but it could allow TD to negotiate better terms, Dechaine said.
The collapse of Silicon Valley Bank, the largest bank failure in U.S. history after Washington Mutual in 2008, also dented the stock prices of many other financial institutions.
These include The Charles Schwab Corporation, which is down more than 30% since last Wednesday, in which TD Bank has a 12% stake. Dechaine noted that every 10% drop in Schwab's share price translates to a $1.8 billion drop in TD's stake in the company.