There's a shocking similarity between the downfall of FTX and the implosion of Silicon Valley Bank, Fundstrat says
- The swift implosion of Silicon Valley Bank and FTX share a shocking similarity, according to Fundstrat's Tom Lee.
- Lee noted that in the digital era, panic could spread a lot faster than it did in the past.
- "The speed of failure of SIVB is stunning and enabled in a digital world," Lee said.
The investing world was given a taste of the speed at which panic can catalyze a full-blown collapse late last year, when the FTX cryptocurrency exchange filed for bankruptcy just nine days after a report highlighted a questionable financial relationship between it and its sister firm, Alameda Research.
"When FTX collapsed in 2022, those in the traditional finance world viewed that lightning collapse as improbable in the 'real world' — but the collapses of SIVB, Signature Bank and Silvergate show this same dynamic can happen to any financial institution in this digital age," Lee said.
After Silicon Valley Bank announced a $1.8 billion loss related to its bond portfolio and saw its stock price decline by 60% on Thursday, panic among the bank's customers spread like wildfire, especially on social media platforms like Twitter and among venture capital group chats and e-mail chains.
Case in point, Silicon Valley Bank received $42 billion of withdrawal requests on Thursday, or about a quarter of its entire deposit base. The intensity and swiftness of the panic, enough to spark an old-fashioned run on the bank, is unprecedented.
"The speed of failure of SIVB is stunning and enabled in a digital world — in fact, its collapse mirrors the implosion of FTX digital. Both happened within days," Lee said. "And no doubt, in this digital age, information moves quickly," Lee said.
That's a precarious dynamic considering that trust in America's financial system is a core tenet of economic stability.
And that's why the Federal Reserve and US Treasury announced emergency measures Sunday evening, to ensure SVB customers that uninsured FDIC deposits would be made whole and a run on Silicon Valley Bank wouldn't spread to other regional banks.
So far, it seems to be helping, though there are a handful of Silicon Valley Bank peers that are no doubt experiencing instability on Monday. Shares of First Republic Bank, PacWest Bancorp, and Western Alliance Bancorp plunged as much as 79%, 59%, and 85%, respectively.
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