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March 14, 2023

Silicon Valley Bank and Signature Bank Closures

By Will Klein, CFA

Client Update

As you may be aware, over these last few days, two banks, Silicon Valley Bank and Signature Bank, were closed and put into receivership by regulators. Importantly, Baldwin Brothers has no banking relationships with either of these firms and, further, recent and ongoing communications with our banking and custody partners, including Bank of New York Mellon, underscore that they are well positioned to weather this turbulence.

While Baldwin Brothers does not have direct exposure to either Silicon Valley Bank or Signature Bank, we are actively monitoring client positions that could be exposed to those closures. We believe that recent Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Treasury interventions, such as the creation of the Bank Term Funding Program (BTFP), should help to stabilize the banking sector. Moreover, we feel the U.S. banking system is well capitalized, and that regulations put into place following the global financial crisis should limit contagion risk at the largest banks. That being said, confidence, not capital positions, is driving markets today, and so, the banking sector could remain challenged in the short term.

Taking a broader portfolio perspective, the failures of Silicon Valley Bank and Signature Bank could have a silver living for well-diversified investors: The bank closures could speed up the end of this rate hike cycle as the Fed seeks to limit financial contagion. We have already seen signs of this in the bond markets, where yields on 10-year treasuries have fallen from 3.96% on Monday, March 6th, down to 3.57% the following Monday. That decline has bolstered fixed income returns and underscored how well-diversified, balanced portfolios can weather acute shocks such as bank failures.

While it could take some time for recent market volatility to subside, we want to reiterate that having a sound, strategic asset allocation framework and adhering to it is the best way to manage through turbulent markets.

We are always happy to have discussions about your custodian bank, as well as recent market developments and portfolio exposures. Please do not hesitate to reach out if you have any questions.


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