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SVB’s collapse was fueled by ‘people on iPhones’ and won’t spread across the US banking sector, Blackstone CEO says

Steve SchwarzmanSVB’s sudden collapse won’t trigger a broader banking crisis, Steve Schwarzman said.

REUTERS/Brendan McDermid

  • There’s no chance of a full-blown crisis developing in US banking, according to Blackstone’s CEO.
  • Silicon Valley Bank failed because of the “interim issue” of high interest rates, Steve Schwarzman said.
  • Rapid withdrawals “by people on iPhones” also fueled SVB’s collapse, he told Bloomberg Thursday.

The troubles that brought down Silicon Valley Bank were sparked by high interest rates and new technology that means bank runs can gather pace faster today, according to Blackstone’s CEO Steve Schwarzman.

That means the recent banking turmoil is unlikely to snowball into a broader crisis across the US financial sector, he told Bloomberg in an interview in Tokyo on Thursday.

“The banking system is not in any type of conventional crisis,” the billionaire businessman said. “We have just an interim issue with interest rates being up and we have a deposit issue caused by technology.”

“And these are both solvable problems for the vast number of banks,” added Schwartzman, who leads the biggest private equity firm in the world with $975 billion assets under management.

Silicon Valley Bank’s collapse earlier this month sparked a selloff in stocks of regional US banks, fueling fears that its failure would develop into a broader crisis.

But some strategists now see those banks as a buying opportunity for investors, with CFRA saying the sharp falls represent a severe discount on some great banks.

SVB’s share price crashed after it disclosed massive losses on its bond portfolio, which had lost value thanks to the Federal Reserve’s aggressive rate-hiking campaign over the past year. When borrowing costs rise, bond prices tend to fall because investors can get a better return from parking their cash in savings accounts.

But Schwarzman highlighted another factor that drove California lender’s failure — digital banking, which enabled people to try to withdraw a staggering $500,000 a second over a 24-hour period.

“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble,” Schwarzman told Bloomberg. “They responded with huge withdrawals in a very short period of time, collapsing the bank.”

But the risks caused by digital banking are limited to banks themselves, so Schwarzman isn’t worried about the crisis spreading to other areas of the financial system. That includes his own area, private equity, where investors lock in their cash for a much longer period.

“It’s important to understand that the risk is really restricted to the banking system because of the deposits, and has almost nothing to do with other types of financial institutions which don’t have the requirement to give people their money instantly,” Schwarzman said.

Read more: Silicon Valley Bank’s spectacular implosion shows how digital banking can decimate a lender in 24 hours

Read the original article on Business Insider
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