- Susana Qosos
- BBC News Arabic
Since the announcement of the collapse of three banks in the United States last week, in what is considered the largest bankruptcy to occur since the economic crisis of 2008, fears are growing about the impact of the spread of this phenomenon on banks and individuals around the world. The banks that announced the collapse are “Silicon Valley”, “Signature” and “Silver Gate”. These banks cover the needs of companies and work with the technology industry sector, which was suffering due to the sharp declines in the cryptocurrency markets and the subsequent tension among investors.
Moody’s, the credit rating agency, warned of more difficulties facing the banking sector in the United States, following the recent crisis that resulted in the collapse of the “Silicon Valley” bank. Republic”, in a move to allay depositors’ fears that it will be the next bank after the collapse of the American “Silicon Valley”, “Signature” and “Silvergate”, European Central Bank President (ECB) Christine Lagarde said after the meeting of the European Central Bank’s Governing Council in Frankfurt, Germany Announcing that the European Central Bank raised key interest rates due to inflation fears amid turmoil in the banking sector after the collapse of US banks and the difficulties faced by Credit Suisse.
As for the European banks, they took measures to “reassure” the Europeans. The European Central Bank raised the main interest rate by fifty basis points, bringing the interest rate to 3.50 percent, which is the sixth time in a row as an increase, in an attempt to reduce the phenomenon of inflation in the European region. Data was released revealing that inflation in Europe rose by 8.5 percent in February of this year.
In the Arab world, and despite the collective decline in the Gulf stock exchanges on Thursday, Moody’s credit rating agency expected that the impact of the failure of the American Silicon Valley and Signature banks on Gulf banks would be limited, given that they enjoy great flexibility in the face of this crisis due to government support for banks in the countries of the Gulf region.
What does the recent bank collapse mean?
The economist from London, Nasser Qalawun, believes that from a technical point of view, the collapse of three banks does not affect the American or global economy, and although the “Silicon Valley” bank is ranked No. 16 in the United States, it is “outside the traditional banking system,” which is What was the case until 2015, but the CEO of the bank campaigned with other banks and American capital to agree that banks with capital of less than 40-50 billion dollars could not be covered by the restrictions of the “Dodd-Frank” committee that came after the financial crisis of 2008-2009.
Qalawun told the BBC: “This agreement means that the bank will not need to face three lines of defense in the Federal Reserve or impose matters on it in terms of trade or investment. The surprise was when this proposal was accepted and became a law signed by former President Trump in 2018. But this bank (Silicon Valley) pumped its capital from 40 billion dollars to 209 billion dollars during its collapse, that is, after 4 years, which prompted investors who wanted quick profits and a great adventure to deposit in this bank, especially during the Corona period.
This is what threatened the sectors in which he works and lends them in the United States and the bank’s branches in other countries, which is what prompted the British Central Bank, for example, to buy a Silicon Valley bank branch there at a value of $6 million, according to expert Qalawun, and he adds that the issue affects specific sectors such as the sector Technology and the emerging medical sector.
Will it affect Bank collapse on the Arab region?
Qalawun says that Arab capital and economically emerging countries in the Arab region are “fascinated” by the American capitalist system, which “falls and then reforms itself” because of its centuries-old connection to the dollar and industrial power in the American economy. However, by virtue of the fact that investments in Silicon Valley Bank are huge and the Arab region is linked to everything that is happening in America, such as major companies such as “Microsoft” and “Google” and others, Arab sovereign funds and wealthy Arabs buy shares in these companies, which makes the interest common, according to him. .
Qalawun believes that the Arab region is affected by the American banking sector, especially the countries of the Gulf region, due to direct and indirect global investments, the peg of their currencies to the dollar, and the security and strategic link with Washington.
New global crisis؟
The economic expert from Cairo, Mohamed Sameh, believes that the current crisis is different from the crisis of 2008, and each crisis follows a separate timeline from the other. The crisis of 2008 was a crisis based more on mismanagement of assets and liquidity, while the current banking crisis was after the banks faced financial crises that collapsed for a long time, in addition to achieving operational losses and the existence of suspicions of money laundering.
Sameh says: “It is not for reference that the current crisis has turned into the 2008 crisis because the current crisis is not related to the quality of assets like the 2008 crisis, but it came as a result of the high interest of the Federal Bank, which led to a decrease in the values of financial assets held on the bank’s balance sheets, which is partly related to the risks related to any A bank and it can be avoided. The crisis occurred when more than 40 billion dollars were withdrawn in one day from the Silicon Valley Bank in order to avoid losing uninsured deposits from the Federal Reserve. The Federal Reserve issued decisions to protect the bank’s depositors’ funds in full, whatever their value, which led to containing the crisis.”
He adds that with regard to the Credit Suisse crisis, the crisis is not related to the current interest situation, because the bank faced problems related to corruption for years, and the loss incurred by the bank during the fiscal year 2022 amounted to $7.9 billion as a result of the exit of customers and the decrease in assets managed by the bank’s wealth management, and the exits reached a peak of nearly 96%. One billion Swiss francs of bank assets.
Collapse or opportunity?
The expert, Muhammad Sameh, says that in the event of a collapse, its impact on the Arab region will be worrisome, given the region’s connection to the global financial system, as well as the presence of Arab sovereign investments in the bank and the presence of a significant percentage of the bank’s assets managed for the benefit of wealthy Arabs, which will leave a negative impact on the region, and he adds: “ However, in the same context, there is an opportunity to reposition the Saudi and Emirati banking system in the global market, where deposits are 100% guaranteed, unlike the percentage of guaranteed deposits from the Federal Reserve, with a maximum of $250,000, which is an opportunity to attract deposits in the banking system as a safer system, especially with a surplus in deposits. Financial reserves for importing deposits.
Advice for individuals and small businesses
In the event of a liquidity crisis, on a small scale, the expert Qalawun advises individuals to buy gold as a traditional method and not stocks or real estate in general, and adds that the matter depends on the economies of the countries on a larger scale: “The majority of the workforce sectors in Western and even Arab countries work through government employment.” In the security and educational apparatuses, then the bureaucracy is bloated in the Arab countries, so it depends on the state whether it is rich or poor, for example the oil countries in the Arab world that sell gas have an abundance of income, but at the same time it is linked to the strength of the dollar and therefore if prices decline in the gas sector energy or collapsed in light of an expected economic downturn, which will affect these rich countries through their purchasing power linked to the decline in the strength of the dollar, and international agencies will extend their hand to these rich countries to increase their share, such as the World Bank, with the aim of combating poverty.
Qalawun expects an increasing collapse of the economy of some already poor countries, such as Sri Lanka, Lebanon, and Tunisia, and an increase in public debt instead of an economic recovery in the absence of reform measures in third world countries due to the domination of elites and corruption, as Qalawun says, according to international indicators and per capita income, although countries say they are making efforts He made great efforts to apply transparency and procedures to “satisfy” international agencies, but he believes that these international agencies and agencies have failed to impose and implement a unified system because of weak laws and making the interests of the capitalist system a priority for the elites at the expense of the middle and low-income classes, according to the expert.
As for the expert, Muhammad Sameh, he advises to reduce exposure in banks that do not insure deposits by 100%, and he adds that despite the Federal Reserve’s rise, but with the lack of clarity in the markets, there will be room to complete the process of increasing gold prices in the markets due to its existence as a “safe haven”, and that it will be one of It is important during the coming period to re-evaluate the risks and people’s acceptance of them due to the presence of high fluctuations in the financial markets in a higher way, so people will have to redistribute their investment portfolios based on the new risks, according to Sameh.