Business resilience has been called into question across financial services, after the collapse of three US banks led to fears that the next global financial crisis may be nigh.

The failure of start-up focused lender, Silicon Valley Bank, New York-based Signature Bank and California-based Silvergate were quickly followed by the news of turmoil at San Francisco-based First Republic Bank (subsequently rescued by a consortium of banks including JP Morgan). In the same week, European banking giant Credit Suisse became the first major global bank to be given a central bank lifeline since the 2008 financial crash.

Could what started as an energy and inflation crisis develop into a credit crisis? At the time of press, research from Allianz Trade suggests that in the US, rapidly tightening monetary policy could create dislocations in funding markets and raise pressure on banks with widening asset-liability mismatches. “The SVB failure is certainly a bellwether of growing frictions in the financial system. In the case of the US, the current (discretionary) band-aid on comprehensive depositor protection has shored up confidence but also entails potential fiscal constraints if more banks are tested by markets on their unrealised losses from fixed-income holdings,” it notes, adding that concerns about Credit Suisse (one of the Fed’s primary dealers) underscores that the risk of a full-blown contagion remains.

Full blown or not, the failure of the Swiss banking giant could have significant knock-on effects. Whilst the health of the European banking sector has improved considerably in the last ten years, events were enough to lead the European Central Bank to hold an unscheduled supervisory board meeting.

Although US regulators acted swiftly to prevent contagion risk and preserve financial stability by taking over SVB, regulatory shortcomings were still to blame for the neglect of the bank’s poor risk management, according to Allianz Trade’s analysts, in the wake of whose failure, other banks will have to become even more conservative in their lending.

SVB’s UK arm was inevitably swept into insolvency after its parent was taken over, despite its insistence that it was ringfenced. The swift sale of SVB UK to HSBC leveraged post-crisis banking reforms, which introduced powers to safely manage the failure of banks – protecting both SVB UK customers as well as UK taxpayers.

Analysts at Hargreaves Lansdown appeared less concerned about the risks to the wider banking sector, pointing to the Bank of England’s judgment in its latest financial stability report that UK banks were sufficiently capitalised and strong enough to deal with even more dire economic outlook. “Smaller tech-focused banks are set for a very rocky ride as the loss of confidence widens but still the risks of contagion to the wider banking sector remain limited,” HL’s Susannah Streeter said. “Although large retail banks have been sideswiped as investors have re-assessed unrealised losses in their bond portfolios, their revenue streams are much more diverse, with large loans books and retail deposits and, with interest rates being hiked, their net interest margins have risen. Since the financial crisis, banks have bigger capital ratios and have been forced to build up their buffers to prevent another shock, so the prospects for wider insolvency are low.”

Meanwhile, the contagion appears not to have spread to Asia, as direct exposures to either SVB or Signature Bank were found by Fitch Ratings to appear to be limited. The weaknesses that contributed to the failure of both banks are among the factors already considered in its assessments for banks in the region, but these are often offset by structural factors, such as regulation, and its expectations that liquidity, were it needed, would be provided by the authorities.

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