Who Loses Most When Big Banks Suddenly Fail? – Evidence from Silicon Valley Bank Collapse

Abstract

We analyze the market reaction of Silicon Valley Bank (SVB)’s public clients to the collapse of SVB. We identify 137 SVB depositors which mention SVB in their 8-K filings from March 10 to March 13, 2023, and 251 SVB borrowers which mention SVB as their lender in any of their 10-K filings from 2021 to 2022. For the depositors, we document an average of -5.12% single-day abnormal return (AR) on the event date (March 10, 2023), and a -12.38% cumulative abnormal return (CAR) over a 30-day post-event window. More surprisingly, the borrowers also experience a similar AR (-4.16%) on the event day and an even worse CAR over the 30-day window (-13.47%). The majority of SVB public clients are from the Healthcare and Pharmaceutical industry, with their headquarters primarily located in California or Massachusetts. In the regression framework, we find that SVB clients are more likely to have worse CARs if they are smaller, with higher cash holdings, or with lower market-to-book ratios. These results indicate that the borrowers appear to suffer more than the depositors from the bank failure. Our findings highlight the importance of commercial banking and financial system stability to small and medium-sized companies, which are the backbone of the high-tech economy.

Keywords: Silicon Valley Bank, Commercial Banking, Event Study

JEL Classification: G21, G30