SVB's Failure Sparks Sharp Sell-Off in the Sector as Banks Face Increased Scrutiny of Unrealized Balance Sheet Losses

Banking Organizations

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SVB Financial Group (SVB; unrated by DBRS Morningstar) failed on Friday, the first bank failure in the U.S. since 2020 and the largest failure since the 2008–09 financial crisis. To bolster liquidity to meet client withdrawals, SVB had recently sold the bulk of its available-for-sale investment securities at a loss and was attempting to raise additional equity capital as an offset, leading to a loss of confidence and a run at the bank. This also triggered a significant sell-off in the broader banking sector in the U.S. and beyond as investors fear other financial institutions are sitting on significant unrealized losses on their balance sheets because of markedly higher interest rates. In our view, banks in our coverage universe have sufficient liquidity and stable funding and capital to navigate this market turbulence. We do expect that, following the rapid rise in interest rates, some banks will reposition their securities portfolios by selling lower-yielding securities and reinvesting the proceeds into higher-yielding assets, incurring losses. Nonetheless, the banks in our rating coverage universe are capable of absorbing these potential losses through earnings and strong capital buffers.