Anthony Sarpong, Senior Partner at KPMG Ghana has advised the Bank of Ghana (BoG) and other central banks in Africa to learn from the collapse of Silicon Valley Bank.
According to Mr. Sarpong, the U.S Bank’s collapse should serve as a warning to the banking industry to avert a similar situation in the future. One of the ways to prevent the collapse of banks is to maintain adequate liquidity to meet customer withdrawals, he said.
Following the collapse of the US bank, Silicon Valley Bank and other bigger financial institutions, Mr. Sarpong in an interview, as a word of caution said the failure of those banks is a clarion call that must not be overlooked. He however expressed confidence in the central bank being able to avert any of the potential risks faced by Silicon Valley. Mr. Sarpong’s confidence in the Bank of Ghana stems from the measures taken by the central bank to support commercial banks in the ongoing debt restructuring programme.
“You noticed that the regulator has taken swift action to contain the effect of what is happening in the United States on the banking sector and any potential spill-over. So we won’t expect any effects.
“However, it’s a developing situation and therefore must be watched with caution so that the fear it triggered in the US does not have a negative impact on Ghanaian banks as we go through our own challenges.”Anthony Sarpong
In addition, the Senior Partner at KPMG Ghana urged the Bank of Ghana to ensure sufficient liquidity in the banking industry.
“The main area is to ensure sufficient liquidity of the banks, and the Bank of Ghana has assured of liquidity support to our banks. So one will be sure that we won’t go through a similar situation as we go on with our own debt restructuring.”Anthony Sarpong
On March 10, Silicon Valley Bank, one of the most prominent lenders in the start-up ecosystem, collapsed.
The Bank was a financial institution that provided banking services to nearly half of the United States (US) venture capital-backed technology and life-science companies.
Generally, the bank’s collapse was attributed to poor risk management, making it the largest bank to fail since the 2008 financial crisis.
The Silicon Valley Case
While taking on venture capitalist depositary funds, Silicon Valley Bank (SVB) invested in longer-tenured debt securities, whose Hold to Maturity (HTM) were ten years and above.
The bank’s collapse was as a result of its failure to consider the dynamics of the global macroeconomic environment with rising inflationary pressures in the US.
In 2022, the Federal Reserve hiked interest rates to combat elevated price pressures in the economy, thus, depository funds started to decline as Venture Capitalists (VCs) pulled back and slowed down their pace of deal making.
This resulted in liquidity issues, which the bank had to cater for by selling off some of its asset positions, although at a loss. This led to a major bank run and solvency issue for SVB as the bank announced plans to raise billions in capital to cover big losses, setting off widespread panic among investors and the tech founders.
The Federal Deposit Insurance Corporation was appointed to take on depositors’ funds, in response to the bank’s collapse. The US Treasury and Fed simultaneously, assured depositors that their funds would be fully protected and paid in full.
In addition, HSBC acquired SVB UK to enable UK customers to continue their banking activities, while making sure that their deposits are safely and fully backed. However, one of the downside risks of the bank’s collapse is the possible contagion risk effect, as evidenced by the recent closure of Signature Bank, marking the third-largest failure in US banking history.
That said, the collapse of SVB serves as a major wake-up call, as Mr. Sarpong puts it to the banking industry and others to maintain a proper risk management system, as well as consider the impact of macroeconomic dynamics on their businesses.
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