Damodaran suggested that even the meltdown of the 16th largest bank in America had shaken the trust of investors, who scrambled to withdraw their money leading to a liquidity crisis in some other regional banks.
Amid the banking crisis in the US, valuation guru and a professor of finance Aswath Damodaran on Saturday explained what can happen in India if the country’s largest public sector lender goes down. He said the problem with banks is that their risks and losses are not separable. “If State Bank of India goes down, guess what, it’s not just State Bank of India going down, it’s going to bring down the banking system,” he said while speaking to India Today Group’s Global Business Editor Udayan Mukherjee.
Damodaran, who teaches finance at the Stern School of Business at New York University, referred to the collapse of Silicon Valley Bank, which was the 16th largest bank in the US. He suggested that even the meltdown of the 16th largest bank in America had shaken the trust of investors, who scrambled to withdraw their money leading to a liquidity crisis in some other regional banks.
Within 24 hours of SVB’s collapse, another regional lender – Signature Bank – had collapsed and share prices of First Republic plunged nearly 90 per cent, prompting authorities to facilitate a rescue deal by a group of large peers.
