When the media reported the SVB crash on Saturday, March 10th, it was the story of a 48-hour collapse. Professionals and private people all asked the same questions: How can one of America’s 20 largest banks collapse in such a short time? And why didn’t we see the signs? It’s a justified question that highlights a critical challenge financial monitoring solution providers are facing.
As for customers, they are now likely to demand more focus on financial risk management. Luckily, there are solutions. Read on to understand the signs that could have raised red flags in time about the bank’s situation. Also, find out how a Gov Data API enables the detection of potential risks and the prediction of potential crises’ that could affect companies’ financial health.
A brief anatomy of the SVB collapse
Who is SVB?
The Silicon Valley Bank is – or was till March 9th – the 16th largest bank in the US. Its headquarters are in Santa Clara, right in the center of Silicon Valley. The bank was founded almost 40 years ago as a subsidiary of SVB Financial Group and grew consistent with the hi-tech industry it supports. One CNN commentator recently called SVB the epicenter of tech startups providing them with oxygen.
Naturally, focusing activity on financing startups means operating in a high-risk environment. And that involves everyone associated with the financial institution.
Were there clues to an imminent disaster?
On March 2nd, SVB filed a FORM S-3 Registration Statement with the SEC (US Securities and Exchange Commission). The document indicated the company’s intention to offer up to $3 billion in securities for sale – a move aimed at raising funds.
Just six days later, on March 8th, the company announced its proposed offerings of common stock and mandatory convertible preferred stock. The bank intended to raise capital by issuing new securities.
These filings may have been a clue that Silicon Valley Bank was facing financial difficulties. However, it wasn’t until Friday that SVB’s problems came to a head, with the company being shut down and placed under receivership by the FDIC (Federal Deposit Insurance Corporation).
What led to the failure?
Alert analysts might have guessed that the bank was heading toward difficult times even before that. The sequence of events that led to SVB’s failure can be traced back to the Federal Reserve’s decision to raise interest rates. This had a severe impact on the company.
SVB was heavily invested in long-dated mortgage-backed government securities. These significantly lost value because of the increase in interest rates. At the same time, and in the same context, more and more customers wanted to withdraw their funds, leaving the bank between a rock and a hard place.
To save the situation, SVB sold its $21 billion bond portfolio at a loss and announced a stock sale to fill its funding hole. Alarmed customers then rushed to get their money out and the rest is already history.
Why detecting signs of financial failure is so challenging
In the case of SVB, it may have been possible for investors to avoid losses by paying attention to the company’s regulatory filings and keeping a watchful eye on market trends. The challenge is, of course, pinpointing this type of data and finding it in time.
If you are an average company, you already spend roughly 40 hours a month on risk monitoring and have 13 people involved in it. That’s what our recent survey report on risk monitoring challenges revealed.
Despite this significant investment of resources (or maybe because of it), 85% of companies find financial and regulatory monitoring presents a challenge. In other words, in many cases, the results don’t justify the resources spent.
35% of respondents to our survey named the time spent on monitoring regulatory changes as their top challenge. Other major issues include collecting relevant data (30%) and tracking new data as soon as it’s published.
This shows the dire need for more efficiency. To help investment bodies, tech companies, and other organizations reach informed decisions and mitigate risks you need to provide datasets that are current and verifiable without burning disproportionate resources. The timeline of events that led to the SVB collapse highlights how important it is to identify critical data points immediately.
However, regulatory and official financial data is unique because it is located in government databases and other official sites, such as corporate and government filings, legal databases, watchlists, PEP lists, AML/KYC/B solutions, and more. You want to monitor hundreds of government websites without the data noise from other sources.
What most risk monitoring solutions are lacking is a competent data provider to deliver a feed of official and government data. Most providers offer news feeds or data feeds that include irrelevant or unreliable sources, rather than focusing on verifiable government sources only. It’s hard to authenticate information among the data noise and identify genuine financial and regulatory risks. A dedicated government data feed enables analysts to detect potential red flags faster and more accurately.
Spot the next crisis through financial and regulatory data monitoring
Using Webz.io Gov Data API, you define the information you are after in your query and receive a structured, unified feed of data.
Here’s what the tool does:
- Crawls government and other official websites worldwide and collects the data defined in your query.
- Covers all the necessary sources (including linked files) and aggregates the relevant data to provide the full scope of congruent data.
- Provides a structured, unified feed of data, machine-readable for easy processing by your system.
- Offers the option to further filter (smart filtering) and drill down into data relevant to your use case so you never miss a critical detail that could harm your client’s business.
As a result, you offer your clients current relevant financial, legal, and regulatory insights to help them stay on top of financial and legal issues. In addition, you can keep an eye on emerging risks.
For example, monitoring company filings regularly helps assess risks associated with investments and reach informed decisions, which is crucial in volatile markets, where minor changes can significantly impact the financial health of a company.
In the case of SVB, the S-3ASR filing appeared clearly in the Gov Data API data feed on March 2nd. The image shows the top result in a recurring query monitoring SEC filings. The result delivers relevant information, such as the date, source, type of file, entity, and more.
Time to upgrade risk monitoring
The fall of SVB has raised a lot of questions. Investors, companies, and anyone involved in the financial market are wondering if this is a one-off incident. The fact that Signature bank was quick to follow SVB down the ditch only added to the uncertainty.
It’s hard to say what the fallout of this event will bring and how other recession-related problems will develop. The financial landscape continues to be unsteady, leaving many business sectors vulnerable. Staying informed and vigilant is more important than ever, especially for regulatory and risk-monitoring solutions. You need to stand out by providing the highest quality, reliable insights. The best way to do that is by powering your monitoring solution with mass, global, and structured financial and regulatory data.
Speak to one of our data experts to boost your financial and risk management solution.
