Could the recent tumult felt in the US banking sector be symbolized by a scene in the 1946 film It’s a Wonderful Life?
“You’re thinking of this place all wrong, as if I have the money back in a safe. The money’s not here!” George Bailey (James Stewart), fictional Bedford Falls, NY banker, informed frenzied customers, who were panicked to recover their deposits in the Frank Capra classic.
Indeed, explaining the highly publicized failure of Silicon Valley Bank (SVB) is “shockingly simple,” says Kogod finance Professor Valentina Bruno.
“It was a classic bank run,” adds Kogod Professor Robin Lumsdaine, department chair and former associate director in the Federal Reserve’s Division of Bank Supervision.
Santa Clara, California-based SVB collapsed in early March as investors rapidly pulled deposits, putting the bank—which had achieved rapid growth amid popularity among tech industry startups—into Federal Deposit Insurance Corporation (FDIC) receivership.
As the Biden administration guaranteed the bank’s depositors and then moved to assure Americans that the banking system, more broadly, remains stable, the SVB crisis and subsequent failure of New York-based Signature Bank has proved a worthy case study inside Kogod classrooms.
After all, a postmortem analysis of SVB has centered, in part, around the bank’s significant treasury holdings coinciding with the Federal Reserve’s repeated and heavily-forecasted interest rate hikes over the course of the last year. As depositors withdrew funds en masse, SVB was forced to liquidate its assets, thus incurring losses in the process, which fueled further customer anxiety.
“This is basic interest rate management I teach my undergraduate students,” Bruno says. “Because interest rates had gone up, the long-term treasuries’ value had fallen.”