Now, the spotlight has been firmly put on all banks in the US and globally.
👉 Background: For context, Silicon Valley Bank had 40,000 customers from around the world. In fact, many Australian-founded businesses that have a global presence have banked with SVB (think: Canva, Nitro Software, Siteminder, and Life360).
👉 What happened: These companies will be able to recover their deposits and move on from this disaster... but now, the spotlight has been firmly put on all banks in the US and globally.
👉 What else: Let's put this into perspective: SVB's market capitalisation was $40 billion - this means it was 4 times bigger than Bendigo & Adelaide Bank, Bank of Queensland put together! So, if a bank that size can fail in the US, it raises the question of where else it could, or will happen.
💡 If it happened in the US, it could happen anywhere else in the world. But there are a number of reasons why Australia's financial system is unlikely to be the next domino to fall:
💡Australian regulation only allows the banks to invest 5% of their assets in "tradeable securities" - like mortgage-backed securities. Whereas in the US, banks can invest 20% of their assets in these securities. This means a larger chunk of their deposits can be invested in riskier assets.
💡 So while it's unlikely to happen to banks in Australia, it's a timely reminder that regulation in the space is critical.
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