The closure of SVB by the California Department of Financial Protection and Innovation shocked the markets Friday, and a second financial institution — New York-based Signature Bank — toppled Monday. The Department of Treasury, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) announced that all SVB depositors would have access to all their funds in a measure made to “protect the U.S. economy by strengthening public confidence in our banking systems.” Similarly, the FDIC reassured depositors and borrowers of Signature Bank — which had assets topping $110.4 billion at the end of last year — that they would have access to their funds with no loss to taxpayers.

However, shareholders and certain unsecured debtholders have been left unprotected by this action, and in addition, senior management from these financial institutions remain exposed. The Securities and Exchange Chairman Gary Gensler advised that, “without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws,” and stated that the commission is on “high alert” for any potential misconduct.

While SVB’s collapse dominated the headlines, San Diego-based Silvergate Bank liquidated a week earlier on March 8. The bank, which touted itself as a leading financial institution for cryptocurrency and fintech investors, wound down its operations in accordance with regulatory processes and planned to fully repay all deposits. Signature Bank also maintained a number of institutional crypto clients. 

While the regulatory response to the SVB and Signature Bank failures was positive, it is unclear how the government may handle future failures. Though a major bleed into the global economy is unlikely, these bank failures serve as a warning for the future, especially for financial institutions that follow an investment strategy similar to SVB.

With SVB’s UK operation also tainted — and now the property of HSBC UK for the price of £1 —a smaller scale version of the turbulence being experienced in the U.S. markets could occur in the U.K., and may lead to more intense scrutiny of other foreign companies with similar operating models.

Countries that have not actively increased their interest rates, such as China and Japan, could also be at greater risk from global market tumult, though no losses are expected at this time.

Rising interest rates also could lead to more exposures and vulnerabilities in the global economy, making this a critical time for companies to review their insurance policies and evaluate their coverages, and determine their exposure in the event of a financial institution failure.

Contact HUB International’s Global Risk Advisors for help on mitigating risk.