In just a few days, regulators took over two failed US banks. The headlines that followed fed anxiety over broader implications for US banks. Although this story is still developing, please be assured we are watching the news closely and our portfolios have limited exposure to impacted companies.
Over the weekend, Silicon Valley Bank, which serves venture capital-backed technology and life services companies, and the crypto-focused Signature Bank failed, largely due to mismanaging assets and liabilities. The resulting mismatch left these banks unable to support a high volume of on-demand redemption requests.
We have no exposure to Silicon Valley Bank or Signature Bank, nor do we have any exposure to alternative investments, meaning we are also not exposed to underlying companies with assets at Silicon Valley Bank or Signature Bank.
Most of our bank holdings are classified as systematically important financial institutions (SIFI). At this stage, the fallout appears limited to certain regional banks, while large, SIFI banks appear outside the milieu. Our portfolios have limited exposure to regional banks.
Liquidity and solvency characteristics of the larger US banks, including our holdings, appear strong. The US banking industry boasts a relatively low loan-to-deposit ratio, and as investors, we closely monitor our bank holdings to understand their underlying health, including reviewing such metrics as commercial real estate exposure, loan & deposit mix, and capital ratios.
President Biden and Secretary of the Treasury Yellen have authorized measures enabling the FDIC to fully protect all depositors at Silicon Valley Bank and Signature Bank. They have likewise assured the public that no losses associated with this resolution “will be borne by the taxpayer.”
Based on this messaging, we believe the federal government is prepared to do whatever is necessary to maintain stability in the US financial system and prevent a large-scale crisis. At the same time, we recognize that the risk premium of US financial services companies has increased. The recent sell-off has highlighted that “higher for longer” interest rates have contributed to greater risks for banks’ earnings outlooks — the result of sustained pressure on funding costs, mitigated loan demand, and the potential for downgraded credit quality.
We welcome your questions so please reach out with specific concerns. Until then, we will continue to closely watch the situation and remain prepared to respond appropriately to effectively manage your assets through this turbulent time.