Silicon Valley Bank crash is a red flag on rate risk

Silicon Valley Bank's failure highlights the risks of investing deposits without interest rate hedges. Comparing banking markets, Japan has the highest potential risk of 18% equity hit due to interest rate increases.

March 14, 2023 . 9:37 PM

1 min read

Silicon Valley Bank failed due to investing most of its deposits in a long-term bond portfolio without an interest rate hedge.
Interest rates have increased globally, making it reasonable to ask if a similar crash could happen elsewhere.
Volatile deposits, high interest rate risk, and insufficient hedges are the three ingredients to a bank's failure.
Comparing vulnerabilities of the US, Eurozone, and Japan banking markets, Japan has the highest potential risk of 18% equity hit.
Models need to be in place to understand depositor behavior accurately.