SVB & BTFP: Two Years Later
In early 2023, the U.S. banking industry faced one of its most significant disruptions since the Great Financial Crisis. A series of high-profile bank failures—Silicon Valley Bank (SVB), Signature Bank, First Republic Bank, and Silvergate Bank—sent shockwaves through the financial system. Each failure stemmed from different vulnerabilities:
- SVB & First Republic suffered from massive deposit withdrawals triggered by rising interest rates.
- Signature & Silvergate faced regulatory pressure due to their involvement in digital assets.
With liquidity drying up and confidence waning, the Federal Reserve introduced the Bank Term Funding Program (BTFP) to stabilize the system. The program provided emergency liquidity, allowing banks to borrow against their securities at face value rather than at market-depressed prices.
Where Are We Now?
The BTFP ceased issuing new loans in March 2024, and nearly all loans have been repaid. Despite this, U.S. banks still hold over $450 billion in unrealized losses on investment securities (FDIC Q4 report). However, the contagion many feared did not materialize—no further major bank failures have occurred since the 2023 crisis.
Lessons & Outlook
1️⃣ Bank failures aren’t always about insolvency, but liquidity mismanagement. Many banks with strong fundamentals collapsed due to a lack of available cash.
2️⃣ Regulatory intervention worked, but long-term risks remain. While the BTFP provided short-term relief, banks still face significant exposure to interest rate risk.
As the dust settles, the broader question remains: Is the banking sector truly stable, or has the risk merely been deferred?
