Your Weekend Reading: Fear of Contagion After SVB Implodes

If you had never heard of Silicon Valley Bank before this week, you likely have by now. SVB was home to cash belonging to half of all venture-backed startups in the US. So it came as a bit of a surprise when the bank suffered an $1.8 billion loss on securities sales and made plans to raise money by selling shares. Surprise turned into panic, which turned into a run on the bank. On Friday, SVB became the biggest US bank to fail in more than a decade. But that’s not all. SVB’s implosion came shortly after crypto lender Silvergate Capital said it planned to shut down. For both, part of the problem was an unusually fickle depositor base. But perhaps the bigger issue—and the threat to the broader financial sector—was rising interest rates. Those rates have left banks laden with low-interest bonds that can’t be sold in a hurry without incurring big losses. If too many customers want their cash, and a bank needs to sell bonds to pay up, it risks a vicious cycle like the one that befell SVB. California state regulators took possession of the lender, and some observers say the meltdown shouldn’t pose a risk of contagion as long as depositors are made whole. But Robert Burgess writes in Bloomberg Opinion that the debacle should nevertheless scare us all.

Jerome Powell told lawmakers this week that the central bank was ready to speed up the pace of monetary tightening should inflation keep running hot. The US job market is too strong for the Fed Chair’s taste, keeping wage-growth elevated. But while US payrolls rose in February by more than expected, cracks are emerging, including a spike in initial jobless claims last week as tech layoffs showed up in the data. Facebook-parent Meta is planning a new round of mass-firings as terminations announced by US employers quintupled in February from a year earlier. But still, US unemployment is at its lowest since Richard Nixon’s first term in office.