The failures of Silicon Valley Bank and Signature Bank were mostly idiosyncratic events that the banking sector can learn from, and the resulting liquidity crunch will lead to a pickup in capital raising and M&A, a panel of experts said during S&P Global Market Intelligence's March 16 webinar, A US Banking System Under Pressure: Understanding the Liquidity Crunch.
Watch a replay of the webinar.
"The industry is very well capitalized. This is a liquidity event," said Chris McGratty, managing director and head of US bank research at Keefe Bruyette & Woods. "I don't think this is a huge, broad-based sign of more bank failures to come."
David Sandler, managing director and co-head of financial services investment banking at Piper Sandler, agreed and noted that banks need to spend time evaluating what happened.
"Everybody has to take a harder look at the nature of these deposits and dig in a little bit deeper and make sure they understand their own business and their own diversification," Sandler said.
Mark Kanaly, a partner at Alston & Bird, said the situation for Silicon Valley Bank was unique, as a set of circumstances "conspired to occur in one bank at the same time."
Sandler mentioned that banks he's been talking to have not seen meaningful deposit outflows and many have even seen deposit inflows, signaling that the run on banks is not a widespread crisis.
The resulting liquidity crunch may also jumpstart M&A and capital raising at banks, activity that had slowed dramatically in 2022.
"The forces that compel mergers have never been more prevalent," Sandler said. Companies looking to diversify their deposit mix and liquidity exposure may find combining with another institution the best route.
"If you're the average operator out there who is debating whether or not to sell your institution and you just lived through this, there will be some of these folks that this is the tipping point.," Kanaly said.
Banks will raise more capital to stay ahead of any changes in regulatory requirements and shore up capital ratios.
"There's almost no scenario where we come out of this, and there isn't some need for more capital in the space," Kanaly said.
The panel agreed that the banking regulators handled the collapse of the two banks appropriately and that backstopping all deposits at both banks, both insured and uninsured, was the right call.
"I think these were two banks that given their size, given the uniqueness of their operating models and given what it would do to the ecosystems in which they both play, I think it would have been extremely disruptive if they had left that unaddressed," Kanaly said.
What that regulatory action means for a future crisis, or if the agencies or lawmakers will do anything to make regulation stricter remains up in the air. Regulators could decide to ask banks what they would do in a deposit run scenario during the stress-test cycles or require banks to hold more capital.
Ultimately, it is too early to tell what actual effect all the uncertainty is having on banks.
"We don't know how much the movement … in deposits is actually going to occur," McGratty said. "We know what's happened between Silicon Valley Bank, Signature and SVB, but you just don't know how it's affected, if it has at all, like the traditional community bank."
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