Concerns about the Silicon Valley Bank collapse shifted to the global banking sector Tuesday, as promises to make depositors whole eased panic within the innovation economy.

While initial fears that SVB’s collapse would spur a contagion across the U.S. banking system seemed mostly contained Tuesday morning, credit ratings and research firm Moody’s complicated the picture anew by cutting its rating for the country’s banking system from “stable” to “negative,” citing a “rapidly deteriorating operating environment.”

Elsewhere in the world, some bank stocks were still reeling, amid worries that the factors that triggered SVB’s stunning failure could be at play elsewhere.  

Jitters in the sector

Markets in both Asia and Australia were down, with bank stocks driving the declines.  

Canada’s banks also had a shaky start to the week, with the country’s seven largest banks down nearly five per cent combined since SVB’s bank run last Thursday. 

While all the Canadian banks regained some ground on Tuesday, the Canadian Imperial Bank of Commerce and Toronto Dominion Bank had taken the biggest hits. 

The SVB ordeal has put TD’s plans to buy First Horizon under the spotlight. TD agreed to buy the Memphis-based bank for US$25 a share in February 2022. The stock closed at US$16.30 on Tuesday. The deal, which is set to close by May 27, was already facing regulatory challenges before the fallout of SVB’s collapse.

Is Canada’s system protected in the long run? 

The diversified customer bases of Canada’s banks may buffer them against a Silicon-Valley-Bank-style collapse. SVB served mainly one industry—tech—which made it vulnerable to market disruptions in that sector like the layoffs and fundraising challenges it’s experienced in the past year. Canada’s banks—especially its large long-established ones—tend not to specialize in one industry.

They also have stricter disclosure requirements than their U.S. counterparts, preventing them from concealing the kinds of unrealized losses SVB had that triggered panic and fuelled the run on the bank. 

“From a Canadian perspective, not only should the failure of SVB not have significant negative implications for our banks, but this crisis should actually be viewed as further vindication of the Canadian banking model, which is dominated by a few large and diversified players,” Bank of Nova Scotia analyst Meny Grauman said in a March 13 note.

Still, Canadian regulators aren’t taking chances. The Globe and Mail reported that the Office of the Superintendent of Financial Services (OSFI)—which on Sunday took control of SVB’s business in Canada—has begun daily liquidity checks on the country’s banks to monitor their health. It’s a precaution the regulator last used at the start of the COVID-19 pandemic to identify early signs of stress in the system. 

In other SVB news: 

• BDC Capital executive vice president Jérôme Nycz told Bloomberg that startups with temporary bridge financing loans from Silicon Valley Bank are scrambling to find ways to refinance them when they come due. The loans were meant to hold companies over until they could raise capital in a better fundraising environment. 

• The largest U.S. banks were initially excluded from bidding to acquire SVB. The U.S. Federal Deposit Insurance Corp (FDIC), which took control of SVB Friday, eventually allowed the banks into the auction, but without enough time to submit bids by the Sunday-afternoon deadline. The FDIC is planning another auction. 
• Alternative asset managers Apollo, Blackstone and KKR are among the investors interested in buying SVB’s US$73.6 billion loan business.