An Update on U.S. Banks

First Republic Bank was seized on May 1, 2023 and sold to JPMorgan shortly thereafter.

In this special report, we offer our perspective on the recent failures of Silicon Valley Bank (SIVB) and Signature Bank (SBNY). Most bank failures historically have been caused by credit risk issues, but SIVB and SBNY were unique cases where mismanagement of interest rate risk—combined with a run on deposits—deemed both banks insolvent in just a matter of days. As we’ll explain below, these two banks were largely in a league of their own in terms of their exposure to risk, which is one of the reasons we do not think financial contagion is likely.

Another reason not to fear a new financial crisis, in our view, is that the U.S. banking system is extremely well-capitalized, with Tier 1 capital ratios at very solid levels and loan-to-deposit ratios at almost their lowest levels in 50+ years.