The surprise bankruptcies of Silicon Valley Bank (SVB) and New York’s Signature Bank have rattled Federal Reserve (Fed) monks so much that they are likely to delay the next rate hike by a month or more. originally scheduled for next week.
What’s more, the US Federal Reserve, together with Treasury Secretary Janet Yellen and the Federal Deposit Guarantee Agency (FDIC), is committed to protecting customer deposits.
Specializing in venture capital debt, the Californian bank SVB boasted that its clients were “nearly half” young technology and science companies experiencing rapid growth.
Rate increases in question
His problem ? The SVB has invested the majority of the money from its clients’ deposits in long-term investments, such as long-term Treasury bills. When interest rates started to rise, the value of his bond investments lost a lot of value. And the bank found itself short of cash.
As for the Signature Bank, it would also be its large exposure to uninsured deposits, ie 90% of deposits, which would have led to its collapse.
Awareness
With the bankruptcies of Silicon Valley Bank and Signature Bank, the world of high finance has just become fully aware of the serious financial damage caused by the sharp rise in the key rates of the Fed, the Bank of Canada and the other central banks around the world.
Curb the panic
To prevent the failure of Silicon Valley Bank and that of Signature from further shaking the American banking system by sowing panic among savers and investors, the Fed made a wise decision by protecting all deposits of customers of the two banks. , regardless of the amounts.
On the other hand, the shareholders of the SVB and the Signature, will collect themselves with heavy losses on the arms since the stock market value of those collapsed.
Question of reassuring the banking world as well as their investors and their customers following the collapse of the SVB, the American president Joe Biden made a point of affirming loud and clear that he will do “all that is necessary” so that US banks remain solid.
“Americans can have confidence in a strong banking system,” he said. »
Fall in bank stocks
The collapse of the SVB bank, followed by that of the Signature, dragged down all the securities of the banks that are traded on the stock exchange, as much in the United States, in Canada, in Europe as elsewhere in the world.
Stocks of major US banks fell 11-13%. Those of the American regional banks suffered much more marked declines, going up to 50% or more in some cases.
At home, our securities of the major Canadian banks have so far managed to limit the declines to less than 10%. For now at least.
Rest assured: the Canadian banking system is recognized for its solidity, good governance and renowned financial framework.