SVB failure spells contagion but not systemic risk

Significance The Federal Reserve (Fed) yesterday announced emergency measures to backstop banks facing short-term liquidity pressures, in order to forestall bank runs like those which overwhelmed SVB and Signature. Impacts The Fed may pause its next rate hike to await more clarity on the extent of any contagion in the banking system. SVB’s demise will exacerbate the capital-access challenges facing its primary customers: tech venture capitalists and startups. Startups will lose key talent if they cannot pay wages, as employees will walk out or be laid off. Banks with large bond holdings will face investor scrutiny for mismatches between their funding costs and the rates earned on their assets. Tighter online regulations are making it harder for tech firms to generate revenue and keep compliance costs low.