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The recent banking crisis ignited by Silicon Valley Bank’s collapse had the financial sector biting its nails. But now, it seems the storm may be passing, and a little optimism is creeping back in.
Following the collapse of Silicon Valley Bank, prominent venture capitalist David Sacks called for immediate action to protect depositors and prevent contagion. Fellow venture capitalist Jason Calacanis raised the alarm on Twitter, emphasizing the potential impact on startups if Silicon Valley Bank’s deposits were not secured, the bank wasn’t sold, or it wasn’t rescued. These concerns were echoed in the wider financial community as smaller banks faced significant deposit withdrawals.
In the wake of Silicon Valley Bank’s collapse, Federal Reserve data revealed that small banks lost $108 billion in deposits, while the nation’s 25 largest banks saw their deposits grow by $120 billion. This shift in deposit allocation indicates a preference for larger, presumably safer, institutions, with fintech companies specializing in banking, payments, and treasury management also benefiting from the situation.
Efforts to stabilize the situation have been underway, with First Citizens BancShares Inc. submitting an offer to buy all of the failed Silicon Valley Bank. A successful acquisition could help the FDIC in its effort to move the bank out of receivership and restore investor confidence in the financial markets.
While sipping their morning coffee, investors should be wary of cognitive biases that could influence their decision-making during these rollercoaster times.
Fundstrat‘s Tom Lee sees signs that the banking crisis may be on its last legs. The CBOE Volatility Index (VIX) dipped below 20, and the VIX term structure normalized – indicators that the worst might be behind us. Additionally, the MOVE Index, tracking bond market volatility, is nearing Lee’s bullish threshold of 150, closing at 156 on Tuesday.
Keeping an eye on regional bank deposit flows and First Republic Bank’s stabilization will be vital in determining the crisis’s resolution. If stocks hold up and don’t hit new lows, bears might just throw in the towel, and the financial landscape could start to look a bit brighter.