www.kroll.com Open in urlscan Pro
2606:4700::6812:1243  Public Scan

Form analysis
3 forms found in the DOM

GET /en/search

<form method="GET" action="/en/search" target="" data-form="" id="globalSearch">
  <input class="SearchInput SearchInput-custom  u-pl-42 u-pr-12 u-resetInput p-6 u-blue-1" placeholder="Find solutions, experts or insights" type="search" name="query" autocomplete="off" data-input="">
  <!-- <button class="SearchInput-label p-6 u-absolute u-center-y u-blue-1 " type="submit" value="Search">Search</button> -->
  <a href="javascript:$('#globalSearch').submit();">
                                <svg class="Icon Icon--search Search__icon Icon--search-custom u-absolute " data-app-tmpl="Icon">
                                    <title>Search</title>
                                    <use xlink:href="#search"></use>
                                </svg>
                            </a>
</form>

GET /en/search

<form action="/en/search" target="" id="globalSearch_mob" method="GET" class="searchBox-form" data-form="">
  <input type="text" class="SearchInput SearchInput-custom" placeholder="Search" name="query" autocomplete="off" data-input="">
  <a class="inPage_a" href="javascript:$('#globalSearch_mob').submit();">
                        <svg class="Icon Icon--search Icon--search-people u-absolute" data-app-tmpl="Icon">
                            <title>Search</title>
                            <use xlink:href="#search"></use>
                        </svg>
                    </a>
</form>

POST

<form id="newsletter-subscription" action="" data-sandbox-url="" method="post">
  <div class="NewsletterWrapper u-mt-6">
    <input type="hidden" name="elqFormName" value="Newsletter-Subscription-Form-Kroll_">
    <input type="hidden" name="elqSiteId" value="615419487">
    <input type="hidden" name="elqCampaignId">
    <input id="sitecoreContactID1" type="hidden" name="sitecoreContactID1" value="">
    <label for="emailAddress" class="p-5 u-fw-400 u-ff-roboto-mono">Enter your email</label>
    <input class="Newsletter-input p-6 u-pl-18 u-resetInput u-w-100" type="email" name="emailAddress" required="" style="height: 40px;border-bottom: 1px dotted #001424;">
    <div class="newsletter-footer">
      <button class="btn btn--blue u-lg-mr-auto newsletter-button" data-lead-score-form=""> Sign up </button>
      <div class="signup__description">
        <p class="p-6 u-m-0">Sign up to receive periodic news, reports, and invitations from Kroll. Our <a href="/en/privacy-policy" class="u-td-none white-to-grey">privacy policy</a> describes how your data will be processed.</p>
      </div>
    </div>
  </div>
</form>

Text Content

Arrow Left Arrow Right Calendar (Dark) Close Send Message Download vCard Google
Podcast Amazon Music Apple Podcast Spotify Stitcher iHeartRadio RSS Feed
Facebook WeChat Filter Linkedin Duff And Phelps, A Kroll Bussiness Duff And
Phelps, A Kroll Bussiness Kroll My account Kroll Kroll Kroll Phone My account
Play Print Sub-services Tick Twitter Play Audio Youtube Pagemill Partners, A
Kroll Bussiness Pagemill Partners, A Kroll Bussiness Prime Clerk, A Kroll
Bussiness Prime Clerk, A Kroll Bussiness Kroll Business Services Kroll Business
Services Kroll lens Instagram
 * Trending Trending
 * Our Capabilities Solutions
 * Phone Hotlines
 * Contact Contact us
 * Global
   Global
   Global Global
    * Global
    * Brazil
    * Canada
    * China
    * France
    * Germany
    * Ireland
    * Italy
    * Japan
    * Mexico
    * Spain
    * United Kingdom

Kroll Kroll Kroll Kroll
Global
Global
Global
 * Global
 * Brazil
 * Canada
 * China
 * France
 * Germany
 * Ireland
 * Italy
 * Japan
 * Mexico
 * Spain
 * United Kingdom

Search


 * SOLUTIONS
 * FIND AN EXPERT
 * INSIGHTS
 * OUR WORK
 * CAREERS

RISK AND FINANCIAL ADVISORY SOLUTIONS

--------------------------------------------------------------------------------

 * Valuation
 * Compliance and Regulation
 * Corporate Finance and Restructuring
 * Environmental, Social and Governance
   Contact us

 * Cyber Risk
 * Investigations and Disputes
 * Business Services
 * See all Solutions

FIND AN EXPERT

--------------------------------------------------------------------------------

 * Find an Expert
 * Leadership
 * Board of Directors
 * Kroll Institute



INSIGHTS

--------------------------------------------------------------------------------

 * Anti-Money Laundering
 * Cost of Capital
 * Cryptocurrency
 * Cyber Risk
 * Environmental, Social and Governance
   See All Insights

 * Evolving Regulatory Environment
 * Financial Crime
 * M&A Advisory
 * Outlook
 * Supply Chain

OUR WORK

--------------------------------------------------------------------------------

 * Client Stories
 * Transactions
   

 * Restructuring Administration Cases
 * Settlement Administration Cases

CAREERS

--------------------------------------------------------------------------------

 * Why Kroll?
 * Testimonials
 * Students

Explore job opportunities
Search
 * SOLUTIONS
 * FIND AN EXPERT
 * INSIGHTS
 * OUR WORK
 * CAREERS

MAIN MENU

RISK AND FINANCIAL ADVISORY SOLUTIONS
 * Valuation
 * Compliance and Regulation
 * Corporate Finance and Restructuring
 * Environmental, Social and Governance
 * Cyber Risk
 * Investigations and Disputes
 * Business Services
 * See all Solutions
 * Contact us

MAIN MENU

FIND AN EXPERT
 * Find an Expert
 * Leadership
 * Board of Directors
 * Kroll Institute

MAIN MENU

INSIGHTS
 * Anti-Money Laundering
 * Cost of Capital
 * Cryptocurrency
 * Cyber Risk
 * Environmental, Social and Governance
 * Evolving Regulatory Environment
 * Financial Crime
 * M&A Advisory
 * Outlook
 * Supply Chain
 * See All Insights

MAIN MENU

OUR WORK
 * Client Stories
 * Transactions
 * Restructuring Administration Cases
 * Settlement Administration Cases

MAIN MENU

CAREERS
 * Why Kroll?
 * Testimonials
 * Students
 * Explore job opportunities

Trending Trending
Our Capabilities Solutions
Phone Hotlines
Contact Contact us


Return to top


PUBLICATIONS


SVB YET ANOTHER EXAMPLE OF THE MARKET VOLATILITY THAT LIES AHEAD

Megan Greene

Rachel Posner



Contact us to discuss guidance or support you may need.

Megan Greene is Global Chief Economist at Kroll. Kroll has deep expertise across
valuation, financial advisory, related disputes, forensic investigations (both
financial and regulatory), forensic accounting, monitorships, cyber
investigations, rescue financing and M&A Advisory.

It has been a long time since we’ve had to face a bank run, but in many ways
Silicon Valley Bank (SVB) was a special case. SVB’s client base and funding
structure both suggest that it is unlikely to trigger a systemic crisis. There
may be some contagion to other small, community banks in the U.S.—particularly
if depositors aren’t all made whole--but the larger banks are unlikely to follow
in SVB’s footsteps. SVB is yet another example that we can expect market
disruptions as central banks raise rates and shrink their balance sheets.

SVB specializes in providing banking services to technology-related start-ups.
For years as interest rates were at the zero lower bound, these tech start-ups
had cash coming in by the truck load from “liquidity events” such as IPOs,
secondary offerings, SPAC fundraising, venture capital investments and
acquisitions. Many of them deposited their cash at SVB.

Most commercial banks operate by taking deposits (short-term borrowing) and
extending loans (long-term lending). SVB was taking in deposits, but it didn’t
extend many loans. This was in part because new tech start-ups don’t tend to
have the kind of fixed assets and reliable cash flows that make for solid,
high-quality borrowers. And it was partly because cash was being handed to them
hand over fist from investors in a zero-rate environment.

SVB could have kept the deposits in Fed reserves or Treasury bills, but they
paid relatively little. So instead, the bank bought longer-dated, typically safe
assets like Treasury bonds and mortgage-backed securities.

When interest rates were at zero, tech start-ups could promise to spend years
building AI/machine learning/flying taxis/robots to take care of the elderly and
then make a lot of money far in the future, and that was an attractive business
proposition. When interest rates rose, a dollar today became better than a
dollar tomorrow, and so investors started demanding cash flows. As the Fed hiked
rates, the cash being thrown at tech start-ups dried up.

Instead, tech firms had to take their money out of the bank to pay for rent and
salaries. SVB’s deposit base fell significantly over the course of 2022. Instead
of having its assets tied up in loans (which broadly tend to have floating
exchange rates and shorter terms), SVB held bonds (which broadly tend to have
fixed interest rates and longer terms). Fixed-rate securities accounted for 56
per cent of SVB’s assets, compared with 25 per cent at Fifth Third and 28 per
cent at Bank of America. The average maturity of SVB hold-to-maturity bonds was
6.2 years at the end of 2022. 

To redeem client’s deposits, SVB had to sell assets at a big loss. As clients
worried about the stability of SVB, they rushed to yank their own deposits,
starting a bank run. Unrealized losses snowballed and “completely subsumed the
$11.8 billion of tangible common equity that supported the bank’s balance
sheet,” meaning that SVB was technically insolvent. The California Department of
Financial Protection and Innovation took possession of SVB and appointed the
FDIC as receiver, citing inadequate liquidity and insolvency.

Is SVB a harbinger of things to come across the U.S. and global banking system?
Not necessarily. SVB was unusually exposed to interest rate risk. This is partly
because its clients only thrived in a low interest rate world and cash funding
for them evaporated as rates rose. But it is also because higher interest rates
hurt the liability side of SVB’s balance sheet more than it benefited the asset
side. For most banks, higher interest rates are good news; they have to pay more
interest on deposits but get paid more interest on their loans (particularly
given how slowly deposit rates seem to be rising these days). This was not the
case for SVB because so many of its assets were tied up in long-duration bonds,
which saw their market value fall as rates went up.

Regulation put in place after the global financial crisis was in theory supposed
to prevent bank runs like this. The Basel III Accords were supposed to limit
banks borrowing short to lend long. But when the Federal Reserve implemented
Basel III in October 2020, it only applied to large, internationally active
banks. Most jurisdictions apply Basel III to their entire banking system, but
the U.S. has a powerful community bank lobby. Consequently, only the big,
international U.S. banks are subject to liquidity coverage ratios and net stable
funding ratios.

The good news is it is unlikely an SVB-style bankruptcy will extend to the large
banks that do have to ascribe to the Basel III rules. The bad news is there are
other small, community banks that could face bank runs and insolvency. The risk
of this is much higher if uninsured depositors of SVB aren’t made whole and have
to take a haircut on their deposits. I expect the Fed would insist that any bank
purchasing SVB make all creditors whole. If not, businesses will recognize that
their uninsured deposits could vanish overnight and will pull their money from
smaller community banks and put them in the larger institutions.

Higher interest rates pose a risk to the banking system, but so too does the Fed
shrinking its balance sheet via quantitative tightening (QT). Research by former
RBI governor Raghuram Rajan and co-authors shows that banks change their
behavior when the Fed expands its balance sheet, but do not change it back just
because the Fed decides to shrink the balance sheet. Rather than park reserves
at the Fed for a very low interest rate, banks extend credit lines that earn
them a fee. This increases their liquidity demands. When the Fed engages in QT,
banks do not sever these credit lines. Quantitative easing (QE) generates a
never-ending ratchet effect on bank liquidity needs. The repo rate spike in the
US in October 2019, the dash for cash in March 2020 and the UK LDI pension blow
up in 2022 are examples of this. It means that QE may be Hotel California, and
QT will be difficult to pull off and will cause market disruptions.

Increasing interest rates and waning liquidity also pose a risk to the
non-banking sector. After the global financial crisis, bank regulation was
introduced that pushed a lot of activity out of banks into the shadow banking
sector. There is little visibility on what exposures lie where in shadow
banking, and even seemingly safe investments like liability-driven investments
could be rife with risk, as the UK experienced last autumn. Private markets may
have a rocky road ahead, as they have taken much smaller paper losses than
public markets over the past year. Some might argue this is because private
companies were priced at a discount to comparable public companies to begin
with. But it could also reflect losses that have yet to be crystallized in
private markets.

With inflation stubbornly remaining above the Fed’s target of an average of 2
per cent and demand remaining strong despite aggressive rate hikes, investors
have priced in a higher terminal interest rate for longer than they had expected
even just a month ago. With crucial macroeconomic indicators like the non-farm
payrolls (NFP) released last Friday and consumer price inflation (CPI) data
released March 14th, market participants have been on a hair trigger to revise
their interest rate projections. A bank run was not expected and will increase
market volatility further. The good news is that because SVB was particularly
interest rate sensitive, it is a special case. There may be contagion to other
small community banks, but the systemically important banks are unlikely to
follow in SVB’s footsteps. The bad news is that SVB is yet another example of
the market volatility we can expect as global monetary policy tightens and
liquidity wanes.

SHARE

 * Twitter
 * LinkedIn
 * Facebook Arrow LeftArrow RightCalendar (Dark)Path 2CloseSend MessageDownload
   vCardFilterLocationDuff And PhelpsPhoneTriangleSub-servicesTickTwitterYoutube

SVB Yet Another Example of the Market Volatility That Lies Ahead
/en/insights/publications/svb-yet-another-example-market-volatility-that-lies-ahead
/-/media/kroll-images/bg-images/svb-news-thumbnail.png?extension=webp
0001-01-01T00:00:00.0000000 publication


SEE ALL SERVICESSTAY AHEAD WITH KROLL


VALUATION

Valuation of businesses, assets and alternative investments for financial
reporting, tax and other purposes.




COMPLIANCE AND REGULATION

End-to-end governance, advisory and monitorship solutions to detect, mitigate
and remediate security, legal, compliance and regulatory risk.




CORPORATE FINANCE AND RESTRUCTURING

Middle Market M&A, Strategic Advisory, Debt Advisory and Private Capital
Markets, Restructuring, Financial Due Diligence, Fairness Opinions, Solvency
Opinions and ESOP/ERISA Advisory.




CYBER RISK

Incident response, digital forensics, breach notification, managed detection
services, penetration testing, cyber assessments and advisory.




ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Advisory and technology solutions, including policies and procedures, screening
and due diligence, disclosures and reporting and investigations, value creation,
and monitoring.




INVESTIGATIONS AND DISPUTES

World-wide expert services and tech-enabled advisory through all stages of
diligence, forensic investigation, litigation and testimony.




BUSINESS SERVICES

Expert provider of complex administrative solutions for capital events globally.
Our services include claims and noticing administration, debt restructuring and
liability management services, agency and trustee services and more.


Kroll


KROLL IS HEADQUARTERED IN NEW YORK WITH OFFICES AROUND THE WORLD.

55 East 52nd Street 17 Fl
New York NY 10055



+1 212 593 1000

 * LinkedIn
 * Twitter
 * Facebook
 * Instagram
 * YouTube

Subscribe to Kroll Reports

Thank you! A confirmation email has been sent to you.

Sorry, something went wrong. Please try again later!

Enter your email
Sign up

Sign up to receive periodic news, reports, and invitations from Kroll. Our
privacy policy describes how your data will be processed.


MORE ABOUT KROLL


 * ABOUT


 * SOLUTIONS


 * TRENDING TOPICS


 * CLIENT STORIES


 * CAREERS


 * OUR VALUES


 * FIND AN EXPERT


 * LOCATIONS


 * Privacy Policy
 * Code of Conduct
 * Cookies
 * Disclosure
 * Licensing
 * Modern Slavery Statement
 * Accessibility Statement

© 2023 Kroll, LLC. All rights reserved. Kroll is not affiliated with Kroll Bond
Rating Agency, Kroll OnTrack Inc. or their affiliated businesses. Read more.


ABCDEFGHIJKLMNOPQRSTUVWXYZabcdefghijklmnopqrstuvwxyz0123456789-_~

x


We use cookies to remember users and provide the best possible experience. Some
cookies are essential, others help us improve your experience through insights
on how the site is used. Please visit ourcookie notice for more information.

Manage Preferences Decline Accept All



COOKIES PREFERENCE CENTER




 * YOUR PRIVACY


 * ESSENTIAL COOKIES


 * FUNCTIONAL COOKIES


 * ANALYTICS COOKIES


 * ADVERTISING COOKIES

YOUR PRIVACY

We use cookies to remember users and give you the best possible experience. Some
cookies are essential, others help us improve your experience through insights
on how the site is used. Please visit our cookie notice for more information.

ESSENTIAL COOKIES

Always Active

These cookies are essential in order to enable you to move around the site and
use its features. Without these cookies, services you have asked for cannot be
provided.

Cookies Details‎

FUNCTIONAL COOKIES

Functional Cookies


These cookies enable the website to function. Certain functional cookies also
allow us to respond to service or other inquiries received through a form.

Cookies Details‎

ANALYTICS COOKIES

Analytics Cookies


Analytics cookies track aggregate site performance, web speed, traffic sources,
video plays and other aggregate data across the site. These cookies allow us to
personalize web experience by type of visitor and, upon certain circumstances,
by individual user. Individual user information is recognized through form
completions or response to other marketing campaigns.

Cookies Details‎

ADVERTISING COOKIES

Advertising Cookies


Upon occasion, our firm advertises on certain media sites and these cookies
track campaign performance. Cookies may be set by our firm or by our advertising
partners. The cookies may be used by those companies to build a profile of your
interests and show you relevant adverts on other sites. They do not store
directly personal information, but are based on uniquely identifying your
browser and internet device. If you do not allow these cookies, you will
experience less targeted advertising.

Cookies Details‎
Back Button


BACK

Filter Button
Consent Leg.Interest
checkbox label label
checkbox label label
checkbox label label

 * View Third Party Cookies
    * Name
      cookie name


Clear
checkbox label label
Apply Cancel
Confirm
Allow All