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Orbisa Insights

SVB Financial (SIVB) and the Impact on Securities Lending Part 3

MARCH 21, 2023

Impact of Banking Crisis on Securities Lending Widens

Even as the U.S. Federal Reserve took extraordinary steps to stem the impact of Silicon Valley Bank’s collapse, including an infusion of roughly $150 billion of liquidity, the ripple of the crisis continues to spread both domestically and abroad.

Regulators and investors alike are particularly focused on First Republic Bank (FRB) of San Francisco and Credit Suisse. With FRB facing liquidity concerns and UBS announcing a takeover of Credit Suisse in the last few days, broader market sentiment remains on a knife’s edge.

Concerns Not Limited to U.S. Domestic Banks

After a turbulent 2022 and a stock plunge in the week following the collapse of Silicon Valley Bank, UBS announced that it would purchase Credit Suisse in a deal orchestrated by Swiss regulators to sure-up the country’s banking sector.

Credit Suisse has seen a strong uptick in loan activity in the last week, a broader indication that the banking crisis’ impact on securities finance would not be limited to U.S.-based institutions. The following chart shows the proportion of available Credit Suisse shares that are out on loan as well as the difference in cost to borrow relative to January 2, 2023, as captured by Orbisa.

During the week of March 13, 2023, utilization jumped from 23% to 65%, with the cost to borrow shares of the bank up 491% compared to the start of the year. 

First Republic Stays Afloat

A consortium of banks combined to throw FRB a $30 billion lifeline amidst extreme volatility in its share price. While the infusion aims to assuage investors’ balance sheet fears, securities lending activity on First Republic shares (ticker: FRC) swelled throughout the week.

We previously highlighted shares of FRC as one of the most impacted regional banks among SPDR’s® S&P® Regional Banking ETF (KRE). At the time, utilization of shares available to loan had jumped from roughly 1% at the start of 2023 to 17% on March 13. As of close of trading on Friday, March 17, utilization had further ballooned to 42% of available shares. The increased demand for FRC has also continued to drive up the cost to borrow shares, which as of end-of-day March 17 had increased a massive 5,679% relative to the start of 2023.

The chart below plots the utilization rate and relative cost to borrow FRC shares since the beginning of 2023.

At Orbisa, we will continue to monitor how these still-developing events are impacting the securities lending market.

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