Financial markets on watch for SVB contagion risk

<p>Kia ora,</p><p>Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news the global financial landscape has been changed by a large bank failure in the US.</p><p>The sudden and unexpected demise of Silicon Valley Bank (SVB) over the weekend has has drawn quick comparisons to the 2008 failure of Washington Mutual (WaMu). When WaMu failed in 2008 it had US$309 bln in assets. SVB has US$209 bln today and will be the largest US bank failure since WaMu. But WaMu's assets were 3.1% of all commercial banks at the time. SVB is 'only' 0.9% today. Still, it wasn't WaMu alone that triggered the GFC; it was the first of a cascade that included much more connected institutions like Bear Stearns, and famously Lehman Bos. In 2023, the only other bank involved so far is the dodgy crypto outlier Silverlake. On their own, they won't cause a crisis. But they will stress the whole banking system that needs depositor confidence to avoid a run. Every investor and regulator remembers the GFC banking crisis.</p><p><a href="https://www.fdic.gov/news/press-releases/2023/pr23016.html" target="_blank"><strong>The FDIC has taken over SVB</strong></a> and is looking for a buyer. Final bids are due today.</p><p>For some perspective, in 2008 the largest American bank was JPMorgan Chase with assets of US$2.175 tln. WaMu was 14% of that. As at the end of 2022, the largest American bank is still JPMorgan Chase with assets of US$3.773 tln. Before it failed, SVB listed assets that were 7.5% of that. ANZ NZ has assets of US$120 bln (NZ$195.6 bln). Neither SVB (nor ANZ !) are globally systemically significant on their own</p><p>Prior to the GFC, US banks had total assets <a href="https://fred.stlouisfed.org/series/DDSI03USA156NWDB"><strong>10.3 times larger</strong></a> than their shareholder funds. In 2010, that swelled to 12.7 times. By the <a href="https://www.fdic.gov/analy