Working Paper: NBER ID: w31772
Authors: Dong Beom Choi; Paul Goldsmith-Pinkham; Tanju Yorulmazer
Abstract: This paper analyzes the contagion effects associated with the failure of Silicon Valley Bank (SVB) and identifies bank-specific vulnerabilities contributing to the subsequent declines in banks’ stock returns. We find that uninsured deposits, unrealized losses in held-to-maturity securities, bank size, and cash holdings had a significant impact, while better-quality assets or holdings of liquid securities did not help mitigate the negative spillovers. Interestingly, banks whose stocks performed worse post-SVB also experienced lower returns in the previous year, following Federal Reserve interest rate hikes. Stock investors appeared to anticipate risks associated with uninsured deposit reliance, but did not foresee the realization of implied losses. While mid-sized banks experienced particular stress immediately after the SVB failure, over time negative spillovers became widespread except for the largest banks.
Keywords: Contagion; Bank Runs; Silicon Valley Bank; Systemic Risk
JEL Codes: G01; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SVB failure (G33) | contagion effects in U.S. banking system (F65) |
| uninsured deposits (G28) | declines in stock prices of banks (G21) |
| unrealized losses in held-to-maturity securities (G33) | declines in stock prices of banks (G21) |
| bank size (G21) | stress levels during SVB crisis (H12) |
| rapid withdrawal of deposits (G21) | liquidity issues for affected banks (F65) |