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With SVB’s focus on the niche industry within the US, it is likely that many traders around the world were not directly affected by this particular banking crash. It also didn’t happen a few days ago when Silvergate Bank, which services the intrastate cryptocurrency market, issued a public notice that it was on its way to voluntary liquidation.

Having said that, there is always some kind of fallout when a major US bank goes under. Stock markets in Europe fell on the news and uncertainty about what might lie ahead, with banking stocks falling in Germany and the FTSE 100 closing 2.6% lower. So, traders and investors would do well to take these recent bank failures as distress signals. After all, the SVB collapse is the second largest banking failure in US history and the largest since the 2008 financial crisis.

With SVB as an example, it’s a good time to stop and think about five important tips to keep in mind when the banking sector goes through disaster and banks start to fail.

5 key tips for traders after a bank crash

diversification

When a massive hit like the one that hit a few banks in the US happens, the first thing to do is always check if your portfolio is well spread across a variety of sectors and instruments. Although this seems too obvious to say, it is very important not to do this because the vast majority of traders – especially those who are just starting out – will put all their eggs in one basket.

In the most recent example, SVB was heavily exposed to the technology sector and its collapse demonstrated the dangers of excessive concentration in a single industry. Investors who diversified their portfolios were less affected by the SVB crash than those who focused their investments in the technology sector.

Always monitor economic indicators and market sentiment

Hindsight, as they say, is 20/20. In the aftermath of an economic crisis, big or small, it is always easier to look back and point out all the signs that are now evident in retrospect. This is why it is so important to monitor the health of a country’s economy and market sentiment for the instruments and industries in which you are investing.

In the case of SVB, the signs were there for those who were paying attention. The Fed rate hike and constant fear of inflation should have caused any affected trader or investor to make sure their capital was secured.

Understanding of regulations and safeguards

If you’ve ever asked yourself the question, “Who actually reads the terms and conditions?” Better keep SVB in your thoughts. Whether you choose a broker or a bank, it is important that you are subject to and adhere to all regulations, insurance clauses, and any other safeguards in place. This is how your money is protected and kept safe.

For SVB, when it filed its last call report in December 2022, the bank estimated that $151.6 billion of its total deposits were uninsured. No wonder what happened a few months later caused great consternation.

stay informed

In the aftermath of a major event, it is extremely important to stay up-to-date with all the news and developments related to it. What was the effect? How did the government react? What potential systemic risks to the broader financial system have you been exposed to? Is there a possibility of infection? Asking these questions and assessing how things will play out after a crisis is key to preparing for future events of a similar nature.

While the US government assures everyone that the collapse of the SVB is not a harbinger of another financial crisis like the one in 2008, traders and investors around the world are understandably on high alert.

Have a contingency plan

We come full circle to manage your exposure. Portfolio diversification should absolutely be a priority of your risk management strategy even if there seems to be no sign of a crisis. When a large bank fails and an entire sector becomes tense, it becomes clear that your strategy must include a contingency plan. A typical example that traders will be familiar with is the creation of stop-loss orders to help reduce losses in the event of unexpected events or market movements.

After the SVB fails, anyone who trades indices, bank stocks, US dollars, and other assets would be wise to reconsider any contingency exit plans they put into action.

the point

SVB is the latest example of a bank that clearly cannot survive in a high interest rate environment. It caused a small financial storm around the world, and the US government had to respond immediately. Although many fears have subsided and market sentiment has subsided somewhat, this latest bank collapse is a good wake-up call for all traders and investors around the world.