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The biggest bank failure since 2008 took place in the USA. European stock exchanges, including Poland, continue to react nervously to the collapse of SVB. Is there really anything to be afraid of? According to experts, financial institutions after the 2008 crisis are definitely better secured.
The collapse of California’s Silicon Valley Bank is the largest U.S. bank failure since 2008 – when Washington Mutual failed – and the second largest in history.
At the time of its collapse, SVB had over $200 billion in assets.
Even on Thursday, before the share price fell by as much as 60 percent. one day, it was valued at $15 billion. For comparison, the largest Polish bank, PKO BP, is valued on the Warsaw Stock Exchange at less than USD 8 billion.
The rest of the article under the video
We have a banking meltdown in the US. What happened?
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What happened? As experts point out, SVB has probably become a victim of the largely justified panic of its customers. They rushed to withdraw money when the SVB on Thursday said it had to book a $2 billion loss and would issue new shares to cover it.
The collapse of the SVB. It turned out to be the weakest link
Silicon Valley Bank was not a typical bank, because its clients were mainly start-ups from California’s Silicon Valley.
These are very wealthy customers, whose funds were largely (as much as 87 percent) not covered by federal guarantees for deposits, which insure funds up to PLN 250,000. dollars.
American companies from the technology industry are also the biggest beneficiaries of the pandemic, which on the one hand unexpectedly increased the demand for their services, and on the other – brought the level of interest rates in the USA to record low levels.
generated this way
surplus capital went to the SVB, which invested it, among others, in in long-term US government bonds
. It is a very safe investment, but it seems that the SVB has not sufficiently hedged the risk of interest rates rising
.
Meanwhile, interest rates not only went up at the beginning of 2022, but it also happened in an exceptionally rapid way.
In addition, 2022 turned out to be the worst year for the bond market in history
.
U.S. bonds are virtually impossible to lose if you hold them for their entire life, that is, until the U.S. government buys them back from us for the amount we bought them for.
Their valuation, however, may be subject to significant changes in the meantime. In particular, long-term bonds issued during a period of low interest rates lose their value when rates go up. This is because they guarantee lower yields, and if we want to sell them, they must compete with the higher yielding bonds currently issued.
As a result, the SVB “woke up” with a substantial package of long-term bonds, the value of which the market began to evaluate after the rate hikes at around 20 percent. less
. In turn, his clients began to fear that if the last ones decided to withdraw funds, there would be nothing left for them. This gave rise to the so-called storming the bank.
Will there be more such cases? The favorite of the stock exchange – First Republic Bank
Although experts emphasize that SBV was a specific bank, and financial institutions after the 2008 crisis are much better protected against similar risks, on the other hand, there are concerns about how many of them may have the same or similar problems.
First Republic Bank, whose shares lost 60% on Monday, are considered the favorites to share the fate of SVB. values before the opening of US stock exchanges. In turn, PacWest Bancorp lost nearly 25 percent in the morning before the market opened. of value, Western Alliance Bancorp approx. 60 percent, Zions Bancorporation 20 percent, KeyCorp – over 10 percent.
For now, it is known that the custom protective umbrella, exceeding federal guarantees, is to be covered by SBV customers. Customers of the smaller Signature Bank received a similar guarantee. However, US Treasury Secretary Janet Yellen also stressed that there will be no bailout for SVB, i.e. that the government will let it fail. He repeated a similar position after 14 our time, President Joe Biden.
Lessons have been learned from the crisis
On Monday, European stock exchanges (including the WSE) lost even more after a very bad Friday. Significant losses concerned primarily the financial sector. Are the fears depicted by this sale justified? What could be the consequences of SVB’s problems and could this be the beginning of a financial crisis comparable to 2008?
This is not 2008. The challenges at Silicon Valley Bank were not wide-ranging or systemic, and both the financial and technology sectors are well-positioned to deal with the challenges posed by SVB in the long and medium term, he assesses in a commentary for money.pl Ben Laidler, global market strategist at eToro.
As the expert points out,
the US financial system is well capitalized and asset quality is high
. “The Federal Reserve and the FDIC acted quickly and were well placed to manage the situation by announcing a full deposit guarantee for SVB and Signature Bank depositors and a $25 billion liquidity program. This support will not solve all the problems of all banks, but it will allay any fears related to US banking system,” Laidler said.
Non-US entities, which are also facing rising interest rates and do not benefit from the aid announced by the US authorities, may still face challenges, he says, and
uncertainty will remain high for quite some time
. Ultimately, however, financial systems – whether in the US or elsewhere – are in a strong position, helped by higher levels of capital, tighter regulation and stronger economies. “The lessons from the 2008 global financial crisis and then the Eurozone debt crisis were hard, but there are schemes to avoid repeating history,” concludes Laidler.
Consequences of lifting feet
As Bartosz Sawicki, an analyst at Cinkciarz.pl, points out, the SBV business model “was created in the era of zero interest rates and did not survive the attempt to aggressively tighten monetary policy.”
“The situation reminds investors that
the consequences of the Fed’s policy and the rate hikes of the past year are yet to come to light
. This is a factor that FOMC members must keep in mind when deciding how much to tighten policy further in March,” the expert believes. dictate the course of quotations on the financial markets in the coming days.
“It appears that
the market does not believe in the possibility of a domino effect
, and the initial panic quickly died down, e.g. thanks to the decisive steps of the authorities and the launch by the Fed of a new tool to support the liquidity of the banking sector and to save deposits,” Sawicki said in a commentary on Monday morning, when US stock indices were sharply rebounding.
On Monday after 18 the S&P 500 index was up 0.35 percent, the Dow Jones Industrial gained 0.1 percent, and the Nasdaq Comp. gained 0.96 percent.
Mateusz Lubiński, money.pl journalist
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Source: money.pl
