Silicon Valley Bank: Global Bank Stocks Plunge Despite Biden Assurances

KATHMANDU, March 14: It comes after authorities had to intervene to protect customer deposits when US lenders Silicon Valley Bank (SVB) and Signature Bank collapsed.

Joe Biden promised to do “whatever it takes” to protect the banking system.

But investors fear that other lenders could still be affected by the fallout, causing sharp falls in global share prices.

Earlier on Monday, Spain’s Santander and Germany’s Commerzbank saw their share prices fall by more than 10% at one point.

A number of smaller US banks suffered even worse losses than their European counterparts on Monday, despite assuring clients they had more than enough liquidity to shield them from shocks.

The volatility has led to speculation that the US Federal Reserve will now halt its plans to further raise interest rates, designed to control inflation.

Biden said that people and companies who had deposited money with Silicon Valley Bank would be able to access all their cash starting Monday, after the government stepped in to fully protect their deposits.

Many business clients had faced the prospect of not being able to pay staff and vendors after their funds were frozen.

BBC North America Technology correspondent James Clayton spoke to people who were queuing all day outside the SVB branch in Menlo Park, California to access their funds.

Since the bank no longer offered wire transfers, they took their money out in cashier’s checks.

How did Silicon Valley Bank collapse?

Silicon Valley Bank, which specialized in lending to technology companies, was shut down by US regulators who seized its assets on Friday. It was the largest US bank failure since the 2008 financial crisis.

It had been trying to raise money to cover a loss from the sale of assets affected by higher interest rates. News of the problems caused customers to rush to withdraw funds, leading to a cash crunch.

On Sunday, authorities also took over Signature Bank in New York, which had many clients involved in cryptocurrency and was seen as the institution most vulnerable to a similar run on the bank.

Biden promised that covering deposits would cost taxpayers nothing and would instead be funded by the fees regulators charge banks.

As part of efforts to restore confidence, US regulators have also unveiled a new way for banks to borrow emergency funds in a crisis.

However, there are concerns that the bankruptcies, which followed the collapse of another US lender, Silvergate Bank, last week, are a sign of trouble at other companies.

Paul Ashworth of Capital Economics said US authorities had “acted aggressively to prevent contagion from developing.”

“But contagion has always been more related to irrational fear, so we emphasize that there is no guarantee that this will work,” he added.

Danni Hewson, head of financial analysis at broker-dealers AJ Bell, said: “The first wave of relief has been replaced by lingering concerns that the era of high rates could be harder for some banks to swallow than realized. I thought earlier.

“In America, bank stocks fell despite Joe Biden’s promise to do ‘whatever it takes’ to prevent more dominoes from falling.”

political consequences

SVB’s failure has reignited debates – similar to those seen after the 2008 financial crisis – over how much the government should do to regulate and protect banks.

US Federal Reserve Chairman Jerome Powell says there will be a thorough and transparent review of the crash.

Biden called for tougher rules and stressed that investors and bank leaders would not be spared.

“They knowingly took a chance… that’s how capitalism works,” he said.

Still, Republican Sen. Tim Scott, seen as a potential 2024 presidential candidate, called the bailout “problematic.”

“Building a culture of government intervention does nothing to prevent future institutions from relying on government to intervene after taking excessive risks,” he said.

Once again, people are worried about the banks. Once again there is an intense debate about bailouts. But this is not 2008.

In the aftermath of the global financial crisis, attention turned to reforming banks deemed “too big to fail.” Today’s problems are centered on small and medium-sized banks.

The two banks that collapsed, Silicon Valley Bank and Signature Bank, had the same thing in common: Their business models were too focused on one sector and they were overexposed to assets whose values ​​were under pressure from rising interest rates.

The criticism is that they should have foreseen it and they did not. US Federal Reserve Chairman Jerome Powell has gone to great lengths to signal the Fed’s intention to raise interest rates.

Since most banks are well diversified and have plenty of cash on hand, the risk to the rest of the banking sector is assumed to be low. That won’t stop regulators from investigating what went wrong and what rules need to be changed.

And the pressure on small and medium banks has not disappeared. It remains to be seen what will happen to the US economy and the fight against inflation.

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