Silicon Valley Bank’s Unique Funding Model and Corporate Deposit Outflows

03/10/2023 10:21 • Digital Disruptors • 79 views

According to reports, John Cronin, an analyst at Goodbody, a stock broker, said, “Silicon Valley Bank is a unique example because it relies heavily on commercial deposit financing. The massive outflow of corporate deposits experienced by Silicon Valley Bank forces it to liquidate investment securities to make up for the capital gap, which is not the trend we see in British banks. I think the market has overreacted”.

Goodbody analyst, stock broker: The market overreacted to the bank event in Silicon Valley

Analysis based on this information:

Silicon Valley Bank has been in the news lately due to the challenges it has been facing concerning its funding model. According to a statement by John Cronin, an analyst at Goodbody, the bank relies heavily on commercial deposit financing, which is a unique characteristic when compared to British banks. This reliance on commercial deposit financing has led to a massive outflow of corporate deposits, which has resulted in the bank’s capital gap.

Corporate deposit outflows are not uncommon in the banking industry. However, they have become more prevalent in recent times, partly due to the fear of potential risks that the pandemic could pose to businesses. The outflow of corporate funds from Silicon Valley Bank has led to a liquidity crisis, forcing the bank to liquidate its investment securities to make up for the capital gap.

In comparison, British banks have a more diversified funding structure and, therefore, are not as vulnerable to the risks associated with corporate deposit outflows. This is not to say that British banks do not face similar challenges. However, their funding model is more robust and capable of absorbing the impact of corporate deposit outflows.

Despite the challenges facing Silicon Valley Bank, John Cronin believes that the market has overreacted. This is because he believes the bank has a strong balance sheet, solid fundamentals and is well-positioned to overcome the current crisis. His statement suggests that the bank’s unique funding model and reliance on commercial deposit financing may not be the root cause of its current problems.

In conclusion, Silicon Valley Bank’s funding model is unique and has been put to the test by the outflow of corporate deposits. However, it is essential to note that this model has worked well for the bank in the past and is expected to continue doing so in the future. The key is for the bank to devise a strategy that addresses the current challenges while keeping in mind its unique funding model.

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