New Zealand banks are less exposed to the risks of rapidly rising interest rates, such as those that crushed Silicon Valley Bank (SVB), because they typically lend money for shorter terms, buy fewer government bonds,
![Madison Reidy](https://s3.amazonaws.com/arc-authors/nzme/d76caae2-0a99-4483-9295-2594872562f0.png)
“As a consequence of banks’ generally prudent risk management, we see little relationships between fluctuations in interest rates and banks’ net interest margins.” The Reserve Bank paper titled Interest rate risk management in the New Zealand banking system read.
If the aforementioned protections failed, the RBNZ also required all banks domiciled here to hold a certain amount of capital in reserve to cover any potential losses.
The root causes of Silicon Valley Bank’s collapse were a mismatching of maturities on assets and liabilities, and the scale of holdings in government bonds, which eroded in value quickly as interest rates rose.
When liquidity issues were highlighted by SVB’s management, spooked customers withdrew US$42 billion worth of deposits in one day - classified as a bank run.
Where New Zealand’s banking system regulation could be seen to be lacking is its absence of a deposit insurance scheme to protect customers’ money.
The U.S Federal Deposit Insurance Corp. which took over Silicon Valley Bank in March, guaranteed a backstop for depositors up to US$250,000.
The FDIC agreed to sell SVB, including all its deposits and loans, to North Carolina-based First-Citizens Bank & Trust Co. in late March.