It’s unlikely a run would be triggered on New Zealand banks, nor would they be forced to sell investments at a loss, because their parents in Australia have less exposure to securities and they hedge
Silicon Valley Bank collapse: Why NZ banks don’t face same fate
![Madison Reidy](https://s3.amazonaws.com/arc-authors/nzme/d76caae2-0a99-4483-9295-2594872562f0.png)
“Excluding derivatives, which likely help lower the risks on those investments, investment securities make up 7 per cent - 11 per cent of assets,” Zaia said.
RBNZ responds
Responding to the Silicon Valley Bank collapse, a Reserve Bank of New Zealand spokesperson assured local banks did not face the same fate.
“We are confident that the banks we are responsible for supervising have sound liquidity and funding positions.
“Banks operating here are subject to different liquidity requirements than those applied to SVB, and all New Zealand banks are operating above minimum regulatory requirements.”
According to RBNZ data, the country’s largest banks ANZ, BNZ, ASB, Westpac and Kiwibank, all had total capital ratios of between 13.4 per cent and 16.4 per cent.
“We continue to monitor the [SVB] situation closely, and are in regular contact with other regional regulators and regulated entities,” an RBNZ spokesperson said.
Tech troubles
“One of these things is not like the other, and that thing is Silicon Valley Bank,” was the subtitle of a research note by J.P. Morgan Asset and Wealth Management chairman of market and investment strategy Michael Cembalest.
In it, he stressed a major, isolated factor that caused SVB’s collapse was its concentrated client demographic.
The majority of SVB’s deposits were held by technology and healthcare companies, including many in an early stage, which were commonly backed by venture capital firms.
Just 7 per cent of its deposits “look like traditional retail deposits”, Cembalest said in the research note dated March 10, the day of SVB’s collapse.
The technology sector was burning through cash balances, struggling to raise equity and is feeling the pressure of rising interest rates, Morningstar’s Zaia explained.
“In contrast, household deposits make up 40 per cent to 50 per cent of deposits across the major Australian banks and business deposits are not reliant on any one sector.”
![Silicon Valley Bank had US$209 billion in assets at the time of its collapse on March 10.](https://www.nzherald.co.nz/resizer/v2/HK4MVGVWHRF53DMD73YCGEIUBU.jpg?auth=a301c77cf3a021485ec546dde7b32260f315b8e231e6787efd20c9e2c5cea931&width=16&height=11&quality=70&smart=true)
Loan-to-deposits
Also, the size of SVB’s loans and investment securities book compared to its deposit book was very high.
“Silicon Valley Bank carved out a distinct and riskier niche than other banks, setting itself up for large potential capital shortfalls,” Cembalest said
Zaia highlighted that was not the case in Australia’s banking sector.
“SVB does not use customer deposits in the same way Australian banks do. For example, Commonwealth Bank [owner of ASB] has a loan-to-deposit ratio of 104 per cent, compared with just 43 per cent for SVB.”
The ‘largest risk’
The contagion across the world’s banking industry was still being realised.
Zaia warned a larger, future, risk was banks globally facing higher costs of debt funding.
“But, in Australia this would likely be passed on to borrowers on variable rates over time anyway,” he wrote.
Deposit flight remained a risk, which is where customers withdraw money from banks entirely or withdraw money from one bank to move it to an institution deemed safer.
“We think the diverse customer base and deposit guarantees will limit a flight to safety in deposits from occurring in Australia.”