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  • Thursday, 29 February 2024
Banks ‘aren’t out of the woods’ after the collapse of SVB and Signature

Banks ‘aren’t out of the woods’ after the collapse of SVB and Signature

The recent collapse of two small banks, Silicon Valley Bank (SVB) and Signature Bank, has raised concerns about the health of the US banking system as a whole. While the two banks were relatively small players in the industry, their failure has highlighted the fragility of some parts of the banking sector.

SVB, which was based in San Jose, California, specialized in lending to start-ups and venture capital firms. The bank was heavily exposed to the tech industry, which has been hit hard by the pandemic. Signature Bank, which was based in Chicago, was a small community bank that served mostly low-income neighborhoods.

Both banks failed in late April, with SVB being taken over by the FDIC and Signature being acquired by another community bank. The collapse of these two banks has raised concerns about the health of other small banks and their ability to weather the economic fallout from the pandemic.

According to analysts, many small banks are struggling to stay afloat as they face rising loan losses and a drop in demand for loans. The pandemic has also put pressure on their ability to generate revenue, with many banks reporting a decline in interest income as interest rates remain at historic lows.

Despite the government's efforts to provide support to the banking industry, including the Paycheck Protection Program (PPP) and other loan programs, many small banks are still struggling. The collapse of SVB and Signature has underscored the challenges that many banks face in this uncertain economic climate.

In an interview with CNBC, Karen Petrou, managing partner at Federal Financial Analytics, warned that the banking industry "isn't out of the woods yet."

"The banking industry is still very fragile," she said. "We have seen a lot of banks fail in the past year and I think we're going to see more in the coming months."

Petrou also noted that the collapse of these banks could have a ripple effect on the broader economy, as small businesses that relied on them for funding are left without access to credit.

"Small businesses are the backbone of our economy and they need access to credit to survive," she said. "If we don't have a healthy banking industry, it's going to be very difficult for these businesses to get the financing they need."

While the collapse of SVB and Signature may be a cause for concern, some experts are optimistic that the banking industry will eventually recover. According to Ken Tumin, founder of DepositAccounts.com, many banks are well-capitalized and have strong balance sheets.

"There are a lot of banks that are doing just fine," he said. "The big banks are doing well, and a lot of the smaller banks are too. I think we'll see some consolidation in the industry, but I don't think we'll see a collapse of the banking system as a whole."

Despite the challenges facing the banking industry, many banks have adapted to the pandemic by offering new products and services, such as mobile banking and contactless payments. As the economy continues to recover, it is likely that the banking industry will evolve to meet the changing needs of consumers and businesses.

 

The recent collapse of two small banks, Silicon Valley Bank (SVB) and Signature Bank, has raised concerns about the health of the US banking system as a whole. While the two banks were relatively small players in the industry, their failure has highlighted the fragility of some parts of the banking sector.

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