Why can the Fed’s decisions affect other banks? – The financial

One of the causes of the collapse of Silicon Valley Bank (SVB), according to specialists, are the decisions of the United States Federal Reserve (Fed) and the rapid increases in interest rates that it maintained in recent months. If this trend continues, other institutions would be in danger.

After Silicon Valley announced its bankruptcy on Friday March 10 and US regulators closed Signature Bank, the Treasury Department and the Fed announced a program in which they insured all the deposits of both banks. This decision, in addition to supporting bank customers, prevented the concern from spreading to other banking institutions.

Enrique Quintana, vice president and general editorial director of El Financiero, wrote in his column that “the US financial authorities they seem to have reacted with enough agility to prevent the spread of panic”; however, these measures are not enough and banks are still ‘fearing’ for the Fed’s decisions.

How does the Fed influence situations like the Silicon Valley crash?

Quintana wrote in his column on Tuesday, March 14, that beyond the errors in the Silicon Valley administration, “the origin of the problem lies in the rapid rise in interest rates by the Federal Reserve.”

The increase in interest rates, announced month after month by the body directed by Jerome Powell, influences the fall in the value of the bonds acquired by the banks, a situation that eventually generates the need for additional capital.

The problem that Enrique Quintana exposes is that if the Fed’s decisions to increase interest rates continue, more institutions would be put at risk.

Specialists predicted that the Fed would increase its interest rate by up to half a percentage point; however, the Silicon Valley collapse opened the discussion to limit the upward cycle of rates.

If the Fed continues with these hikes, according to Enrique Quintana, “it could have important repercussions for Mexico as wellbecause perhaps the expected rise that would come in the next monetary policy decision of the Bank of Mexico would also be interrupted”.

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