Reputational contagion from the Silicon Valley Bank debacle

Shoaib Ali, Muhammad Naveed, Mariya Gubareva and Xuan Vinh Vo

Research in International Business and Finance, 2024, vol. 69, issue C

Abstract: Using the event study method, we observe that due to Silicon Valley Bank (SVB) collapse, US and European banks experience negative returns, while Chinese banks remain relatively less affected. Our results also show that assets like oil, gold, and cryptocurrencies exhibit positive returns, suggesting that investors may seek refuge in these perceived safe havens. Additionally, our study findings show that the SVB's financial distress has a detrimental effect on the stocks of banking companies in the US and Europe, whereas it has a positive impact on the stocks of technology companies in these regions. Our results highlight the importance of proactive risk management and regulatory interventions, as demonstrated by the US regulator's approach. Moreover, investors may be heed of the positive returns in safe-haven assets like oil, gold, and cryptocurrencies during periods of financial distress. Diversifying portfolios to include these assets can be a prudent strategy. Furthermore, regulators must consider a stricter regulatory framework to counteract contagion risk and to ensure financial system stability in the case of a future bank collapse such as the SVB debacle. While our study offers valuable insights into the contagion effects of SVB distress, we acknowledge a potential limitation of our study as the event study method, which is robust in capturing immediate market reactions, may present a challenge in comprehensively assessing the long-term implications.

Keywords: Bank default; Event study; Financial market risk; Contagion; Safe heaven; Gold; Cryptocurrencies; Stocks (search for similar items in EconPapers)
JEL-codes: G01 G13 G15 G33 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000680

DOI: 10.1016/j.ribaf.2024.102275

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