Sudden Downfall

When India’s political scene and stock market were in a tizzy over the Hindenburg report on the Adani Group, we came across the sudden collapse of an American bank, on which there was no report from any research body or rating agency.

From start-up saviour to sudden collapse in just 48 hours. That’s the story and history of the Silicon Valley Bank (SVB), the 16th largest bank in the US. It was started in 1983, and achieved a phenomenal growth in no time. But its parent company’s stock plummeted by over 60% on 9th March 2023 and fell further on the next day.

The SVB was known as the bank of start-ups, where many tech companies, including those run by Indians, had invested heavily. It was also a trusted financial partner to the venture capitalists, who had funded these start-ups.

The reasons of downfall could be a record inflation, shady balance sheets and rising rates. The sudden increase in the interest rates made less valuable the mortgage securities in the banks’ possession. Low interest bonds caused huge losses in value amid the Federal Reserve’s rapid rate hikes.

And when there is a sudden demand for withdrawal of money, the banks face a cash crunch and are unable to honour their promises. So they are forced to sell those assets and realise losses, resulting in the collapse.

What facilitated the collapse further was the Donald Trump’s Law, enacted in May 2018, that exempted banks with assets of less than $250 billion (earlier the threshold was $50 billion) from following the severe operational risk measures, e.g. Basel norms of capital risk, market risk and operational risk.

Such banks (including SVB) no longer had to undergo periodic stress tests to ensure that they were properly insulated from the risk of collapse. As a result, they enjoyed the laissez faire situation and registered an exceptional growth both in assets and deposits.

The collapse of two other American Banks- Signature Bank and Silvergate Capital Corp highlights the danger of depending solely on market forces to run financial institutions.

In sharp contrast to US, the banking rules and regulations (including risk parameters and measures), in India, are the same for a mega bank like State Bank of India or a small bank like IndusInd Bank. The customers of both types of banks enjoy the same protection for their deposits, as regulated by the Reserve Bank of India.

The Basel norms stipulated a capital adequacy ratio (CAR) of 8%, but RBI is more stringent. It has stipulated that banks in India would maintain a CAR of 9%, apart from the usual cash reserve ratio (CRR) of 4.5% and statutory liquidity ratio (SLR) of 18%.

The fear is that the collapse of these banks may have a cascading effect on the entire banking sector in the US, and other countries like India may not remain unaffected. Some tech start-ups and IT firms have already started feeling the effects of the contagion effect. Our stock market has also seen a lot of volatility after the collapse of SVB

It’s better to be slow and steady than to be fast and furious.

–Kaushal Kishore



    1. That’s really a bad decision. Finance is an area that needs a prudent regulation. Immature handling makes it a mess. Thank you Stella for sharing your thoughts.


  1. Esto es un sin vivir. Los que aún teniendo todo con TODO no tienen suficiente. El dinero no vuela, no desaparece, el dinero cae unas pocas manos y el resto nos quedamos mirando pasar el aire. Un asco de mundo.

    Liked by 1 person

    1. I can feel the disgust, but I agree with you, money doesn’t fly, it falls into a few hands. That’s why an impartial regulator is required for banks and finance. Thank you!


  2. As always, Kashal, you are one step ahead in choosing your topic because just now it was announced on the news that Credit Suisse bank is seeking a bailout.
    It got it but you are right, Kaushal, the most important aspects are confidence and trust.


    Liked by 3 people

    1. Thank you, Joanna for your generous praise! Much appreciated! Credit Suisse had started showing signs of weakness, when it didn’t come out with its results and balance sheet on the scheduled date. My only wish is that the contagion should not spread to other countries. We had seen the effect of meltdown in 2008.

      Liked by 1 person

  3. Kaushal, I really appreciate your professional judgement and even handed explanation about these events. I think with Credit Suisse in today’s news, the problem is going international. Great line slow and steady if better than fast and furious.

    Liked by 2 people

    1. Thank you very much, Pat, for your kind comment. My only fear is that if a few more banks fail in America, it would not be possible to check the meltdown. Let’s wish it doesn’t happen..

      Liked by 2 people

    1. Trump is a businessman, who loves to take risks for booking more business. He did the same thing with banks too and exposed them to risks. I too hope that the problem will be contained soon. Thank you, Cheryl, for sharing your thoughts 💐💖

      Liked by 1 person

  4. When has the US cared about its effect on the rest of the world? We’ll come with a few charitable band-aids later and take credit for only scratching the surface of huge problems we ourselves created…

    Liked by 1 person

    1. You’re right, Ana, but I hope that whatever is happening in the US, it should not have an adverse impact on the rest of world. Thank you!


  5. As you quite rightly point out Kaushal, What goes up fast comes down fast – apart from prices of course. I fear there’s more of this to come, but I do hope we’ve learnt something from the 2008 debacle.

    Liked by 1 person

    1. You have rightly pointed out the 2008 meltdown, Malc. The way things are taking shapes doesn’t provide comfort. We can only wish that the contagion effect is nipped in the bud. Thank you!

      Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s