After the fall of Bank of Silicon Valley, experts And market watchers openly feared that the collapse of this institution, as well as Signature Bank and Silvergate Bank, could lead to potential contagion that would spread to the rest of the financial sector. But the CEO of a major private equity group doesn’t think that will happen due to the specific tech frenzy around SVB.
“This crisis was caused by people using iPhones and other devices, hearing on social media that a bank might be in trouble,” black stone CEO Steve Schwarzman said in an interview with Bloomberg in Tokyo on Thursday. “They responded with huge withdrawals in a very short time, crashing the bank.”
Schwarzman, whose company manages $975 billion of assets, added that the current banking turmoil did not resemble a “conventional crisis”. In the case of SVB, rather than holding risky assets, they had an imbalance of otherwise very safe bond assets that were maturing over a longer period. As the Fed raised interest rates, the value of these bonds fell, but they would have been paid off in time if not for the bank run.
“We just have a temporary problem with rising interest rates and we have a deposit problem caused by technology. And those are two solvable problems for the vast number of banks,” Schwarzman said.
However, the billionaire said it was still important for banks and financial institutions to understand how the crisis might affect them.
“It is important to understand that the risk is really limited to the banking system because of the deposits, and has almost nothing to do with other types of financial institutions which do not have the obligation to give their money to the people instantly,” Schwarzman said.
Representatives for Blackstone declined to comment following Fortune on Schwarzman’s remarks.
The collapse of SVB earlier this month rocked the shares of several regional banks including First Republic and PacWest BanCorp. A few days later, Credit Suisse faltered and was quickly acquired by UBS for $3 billionjust a fraction of what it was valued just a week ago, amplifying fears of a widespread banking crisis.
Bill Ackman of Pershing Square said he was worried on “a risk of financial contagion spiraling out of control”, while economist Mohamed El-Erian said that while failing banks themselves would not precipitate a domino effect on other institutions, an erosion of trust in the banking sector could exacerbate a “economic contagion.” For now, the sale of SVB to First Citizens bank earlier this week seems to have calmed investors down, at least for the moment.
Schwarzman isn’t alone in believing that social media and smart devices have accelerated the SVB crisis. Citigroup chief Jane Fraser says technology was a complete game-changer by spreading panic and rumors leading to the $42 billion bank run on SVB.
“There were a few tweets and then this thing went down a lot faster than it’s happened in history. And frankly I think the regulators did a good job of responding very quickly because normally you have more time to respond to that,” Fraser said last week. in an interview.
And other market watchers have speculated that the social networks aspects of banking requires a total overhaul of the financial industry.
“The fact that people can communicate much faster … (has) changed the dynamics of bank runs and perhaps changed the way we need to think about liquidity risk management,” said Todd Baker, senior fellow at the Richmond Columbia University Center, according to Reuters.
