Insight
March 2023
Data & Analytics
SVB FINANCIAL (SIVB) AND THE IMPACT ON SECURITIES LENDING PART 2
KRE ETF Signals
In the first part of this series, it was clear that the bank run on SVB had a significant and immediate impact on regional banks in the securities lending market. Yesterday, Orbisa focused on the constituents of the SPDR® S&P® Regional Banking ETF (KRE) to illustrate the sharp uptick in borrowing demand. Today, Orbisa takes a closer look at the KRE ETF as a whole and some of the early warning signs in the securities lending market that could have alerted investors sooner. As well as some other banking names to keep an eye on.
The two key metrics typically looked at to gauge shifts in borrowing demand in the securities lending space are utilization, a measure of demand vs supply and rate. KRE’s utilization has hovered around 100% for the last four months as seen in the chart below, a potential indicator that demand was saturated and not increasing. Similarly, when looking at the one-week fee volatility in Orbisa, a measure of the day-on-day change in fees for new loans, that figure remained relatively stable from December 1 through March 10 and only spiked as news of SVB hit the market on March 13.
However, looking at another metric in Orbisa, the broker to broker on loan quantity, whereby broker dealers borrow and lend from one another, it’s clear that demand continued to rise for KRE in recent months. On December 1, the broker to broker on loan quantity sat at roughly 1 million shares, but by late January it had grown to over 8 million shares and even eclipsed the lender to broker balance of 6 million shares. This figure continued to increase right up until the news of SVB broke peaking at just under 12 million shares.
As investors continue searching for other regional banks with potentially similar issues to SVB, Orbisa continues to look at stocks for the banks receiving regular media coverage. The below table illustrates those names with the largest increases in total shares on loan (Lender to Broker and Broker to Broker) from December 1, 2022, to present day.