After the collapse of Silicon Valley Bank, how likely are bank failures in Canada?
CTV
While the risk of a bank failure in Canada isn't zero, many of the circumstances that led to the collapse of Silicon Valley Bank don't apply in the Canadian banking sector.
The world economy continues to feel the ripple effects after U.S. authorities took over Silicon Valley Bank (SVB) last Friday.
SVB was the 16th largest bank in the United States, largely catering to startups and the tech industry in California. It was the largest U.S. bank failure since 2008. On Sunday, regulators also closed New York-based Signature Bank.
But in Canada, a bank hasn't collapsed in nearly 27 years. While the risk of bank failure in Canada isn't zero, many of the circumstances that led to the collapse of SVB don't apply in the Canadian banking sector.
"No bank is immune to a bank run," Western University's Cristián Bravo, who is the Canada Research Chair in banking and insurance analytics, told CTVNews.ca over the phone Tuesday. "If everyone goes to the bank and tries to withdraw their money, that is going to cause a collapse."
SVB had been heavily invested in government bonds and mortgage-backed securities. But as the U.S. Federal Reserve began to raise interest rates, these investments slowly began to lose their value.
"Now, this isn't a new problem in banking and you can insure against this type of interest rate risk. Clearly SVB didn't do that. And so this is as much the fault of regulators and stress-testers as it is of the bank itself. This is absolutely something that should have been foreseen," David Macdonald, senior economist for the Canadian Centre for Policy Alternatives, told CTV News Channel on Tuesday.
SVB, facing a lack of liquidity, announced last Wednesday that it had sold off these investments at a loss and needed to raise capital to fill a massive hole in its balance sheet.
