SVB is no Lehman

The collapse of Silicon Valley Bank (SVB) in the US is not another “Lehman moment”. While the “biggest US bank failure since 2008″ may sound like an ominous reminder of the crashes and contagion that shook Wall Street ahead of the Great Recession, this case differs significantly. Since regulation has tightened, the general risk of knock-on effects is lower. Also, SVB was more of a lender than an investor. Covid-time easy money had led to a bloat in deposits held by SVB’s startup clients, a huge chunk of which was invested in bonds (think lazy banking) that crumpled in value as the US Fed sharply reversed its monetary policy to quell inflation. As a tech-sector squeeze begot withdrawals that forced bond losses and revealed a gap in need of capital infusion, a panic run on SVB ensued. Less lazy US banks are also exposed to bond portfolio damage, but it’s less of a worry for them; their assets and liabilities would be more diversified and hence less risky too. SVB bailout calls have arisen, but only if it poses a systemic threat would a federal rescue be justified. At this stage, SVB’s failure has not assumed such proportions, even if some startups suffer, and it’s best for the rest of us that it doesn’t.