Regional Bank Stock Reactions to using Held-to-Maturity Securities

On March 9, 2023, Silicon Valley Bank’s (SVB) stock fell 60% while customers withdrew $42 billion in deposits in the largest ever bank run. The underlying culprit was massive losses in SVB’s long-term treasury holdings which were categorized as held-to-maturity (HTM), a designation that values securities at maturity value instead of market value. SVB was not alone in using HTM securities. The regional banking sector fell 36% while large national banks declined 14% over the next three months. This study shows regional and national banks that used HTM were not harmed during 2022 and likely benefited from the higher equity values they could report. However, after SVB’s collapse, HTM levels were significantly related to banks' stocks decline from March to May 2023 after controlling for market capitalization, price to earnings ratio, and earnings growth. Regional and national banks recovered, respectively, 38% and 25% over the remainder of 2023 with HTM seemingly a non-factor once again.