Local Experts Disagree Over US Bank’s Collapse
Some experts have expressed different opinions about the impact of the collapse of the American bank, Silicon Valley Bank, on the Nigerian economy.
Regulators closed SVB Financial Group and its subsidiary, Silicon Valley Bank, on Friday and seized its deposits in what is the largest US banking failure since the 2008 financial crisis and the second-largest ever.
The beginning of the end for SVB started on Wednesday, when it surprised investors with news that it needed to raise $2.25bn to shore up its balance sheet.
According to a California regulatory filing, customers withdrew $42bn of deposits by the end of Thursday.
The ripple effect of the SVB collapse was seen in banking stocks in the US as four banks lost $52bn in market value as of Friday.
Reacting to the development, financial analyst, Johnson Chukwu, said that Nigerian financial institutions will not be impacted by the shocks of the SVB collapse.
Chukwu said, “It depends because our currency is not yet tradable. It is not a convertible currency so it is difficult for Nigerian financial institutions to invest outside the country. Before they can invest, they get Central Bank approval and most of these investments are not short-term investments.
“They are long term investments in terms of acquisition of subsidiaries, major stakes in offshore financial entities. Because Nigerian banks do not play in the global interbank market and in the global short-term market, so I doubt if we will have any Nigerian financial institutions that will be directly exposed.
“Of course, we could have a Nigerian entity, which in this case will be non-bank financial entity. But for financial institutions, the risk of contagion is low.”
Prof Olawale Ajai of the Lagos Business School also said that Nigeria’s exposure appeared small at the moment. He however, called on the government to assess the situation and do the needful.
He said, “Exact impact is unclear for now and Nigerian exposure appears small. Apparently, funds of some Nigerian entities may be within the insured deposits. If a buyer can be found, larger depositors may eventually be made whole.
“Nigerian authorities should assess impacts to see if there is need for rescue or support. Funding of tech companies may suffer a short term decline. Incoming government hoping to push tech sector growth should put on its ‘thinking cap.”
However, a professor of economics at Babcock University, Segun Ajibola, expressed fears of systemic problems and the impact that the collapse of SVB would have on the global banking industry, which would not exempt Nigeria.
He said, “The news came as a rude shock. SVB has been a major name in the banking landscape not only in the US but globally, so when the regulators moved against it, it came as a shock.
“The truth of the matter is the collapse of a bank can lead to systemic problems and systemic distress if care is not taken. Don’t forget that one bank has relationship with other banks. So, what affects one if care is not taken will affect all.
“The extent to which the impact is determined by the share of the collapsed bank in the banking system; share in deposits, share in loans, share in market share. If the market share is huge, the impact will be huge.”
He added that, “Talking about Nigeria or any other country, there are banks that will be relating with SVB, that SVB will be relating with as correspondence banks; there are transactions on behalf of Nigerian banks that will have been passed through SVB. In terms of correspondence banking, it will definitely have an effect on banks in other countries; exporters and importers based in other countries. It has global implications. This is not cheering news at all for the banking industry.”
Meanwhile, the US Treasury Secretary, Janet Yellen, on Sunday said the government wanted to avoid financial contagion from the implosion of the Silicon Valley Bank but ruled out a bailout of the institution.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said during an interview with CBS.
Yellen said reforms made after the 2008 financial crisis meant the government was not considering a bailout for SVB.
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out and the reforms that have been put in place means that we’re not going to do that again,” she said.They are long term investments in terms of acquisition of subsidiaries, major stakes in offshore financial entities.
Because Nigerian banks do not play in the global interbank market and in the global short-term market, so I doubt if we will have any Nigerian financial institutions that will be directly exposed.
“Of course, we could have a Nigerian entity, which in this case will be non-bank financial entity. But for financial institutions, the risk of contagion is low.”
Prof Olawale Ajai of the Lagos Business School also said that Nigeria’s exposure appeared small at the moment. He however, called on the government to assess the situation and do the needful.
He said, “Exact impact is unclear for now and Nigerian exposure appears small. Apparently, funds of some Nigerian entities may be within the insured deposits. If a buyer can be found, larger depositors may eventually be made whole.
“Nigerian authorities should assess impacts to see if there is need for rescue or support. Funding of tech companies may suffer a short term decline. Incoming government hoping to push tech sector growth should put on its ‘thinking cap.”
However, a professor of economics at Babcock University, Segun Ajibola, expressed fears of systemic problems and the impact that the collapse of SVB would have on the global banking industry, which would not exempt Nigeria.
He said, “The news came as a rude shock. SVB has been a major name in the banking landscape not only in the US but globally, so when the regulators moved against it, it came as a shock.
“The truth of the matter is the collapse of a bank can lead to systemic problems and systemic distress if care is not taken. Don’t forget that one bank has relationship with other banks. So, what affects one if care is not taken will affect all.
“The extent to which the impact is determined by the share of the collapsed bank in the banking system; share in deposits, share in loans, share in market share. If the market share is huge, the impact will be huge.”
He added that, “Talking about Nigeria or any other country, there are banks that will be relating with SVB, that SVB will be relating with as correspondence banks; there are transactions on behalf of Nigerian banks that will have been passed through SVB. In terms of correspondence banking, it will definitely have an effect on banks in other countries; exporters and importers based in other countries. It has global implications. This is not cheering news at all for the banking industry.”
Meanwhile, the US Treasury Secretary, Janet Yellen, on Sunday said the government wanted to avoid financial contagion from the implosion of the Silicon Valley Bank but ruled out a bailout of the institution.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said during an interview with CBS.
Yellen said reforms made after the 2008 financial crisis meant the government was not considering a bailout for SVB.
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out and the reforms that have been put in place means that we’re not going to do that again,” she said.
