The story of the bankruptcy of two banks in the United States received wide coverage around the world. Focus He learned what crippled financial institutions and whether other American banks awaited a similar fate.
In the United States, two banks went bankrupt within days – Silicon Valley Bank (SVB) with approximately $209 billion in assets and Signature Bank with $110.36 billion in assets. Focus he analyzes in detail in his new review, “American-style bank decline. Does bank failure in the US affect the dollar and Ukraine?”
“The events surrounding the bankruptcy of the banks received a very broad response due to the connection of their problems with the rapid development of the cryptocurrency market. These banks served a large number of cryptocurrency companies, they were quite active participants in this market, which made them. Responding to the risks associated with changes in the cryptocurrency market. vulnerable“, – Pavel Matiyash, CEO of the financial company Activitis, comments on the situation.
That is, the banks in question did not try to restructure the business in practice, developing the highly specialized and retail aspect serving the startup industry and crypto companies. In the end, special expertise played a cruel joke on them.
“The situation with the bankruptcy of two local banks in the United States (Silicon Valley Bank and Signature Bank) is explained by the fact that: deposit bases consisted mainly of funds from venture investors, which began to attract them sharply amid worsening business prospects, while the overall US financial system remained very resilient.– explains Dmitry Churin, head of the analytical department of the investment company Eavex Capital.
However, the main prerequisite for the bankruptcy of banks was not a focus on cryptocurrencies and startups, but failed risk management. Pavel Matiyash lists the factors that shook the situation in banks as follows:
- low return on assets;
- incorrect risk management;
- insufficient capitalization;
- bad investments;
- the COVID-19 pandemic, which led to a significant economic downturn and financial market turbulence.
The catalyst for initiating the destructive processes was the acceleration of inflation in the United States and a rather sharp increase in the Federal Reserve System (FRS) discount rate. Recall that in March 2022, after the start of Russia’s full-scale invasion of Ukraine, the Fed rate was reduced from 0.25% to 0.5% for the first time in two years. After that, there was a gradual increase to 4.75% at each subsequent meeting of the Fed.
“Especially 5-7 years ago, the SVB was very actively investing in mortgage-backed securities and bonds with a maturity of 5-10 years. The rates were very low, 1.5-2%, so the bank chose some long-term securities. “As we began to struggle and raise interest rates, market rates rose, the value of the bank’s securities portfolio fell by 17-20 percent, and the bank was unable to cover the loss from the revaluation with capital.” Association member economist Shapran describes the destructive mechanism of financial analysts.
As stated in the comment Focus Alexander Martynenko, Head of ICU Group’s Corporate Analysis Department, The SVB suffered a loss of $1.8 billion due to rising rates and falling bond prices, and a desperate attempt to sell shares failed and the deposit outflow turned into a stampede. As a result, the bank’s shares lost 60% in one day and the bank was closed the next day.. Also, according to Martynenko, Signature Bank suffered a similar fate due to an unsuccessful strategy for the formation of assets and liabilities.
Vitaly Shapran, probably, The SVB not only failed to anticipate the impact of COVID and “Putin” inflation, which remained high in the US and EU, especially due to the war in Ukraine. Therefore, respondents Focus experts do not exclude other individual cases of bankruptcy of financial institutions in the US and EUbut reject the possibility of a large-scale bank collapse and the development of a global financial crisis, as happened in 2008.
Previously Focus He examined what affects prices in Ukraine and what inflation will be in 2023.
Source: Focus
John Holton is a seasoned author and journalist, known for his expertise in economics. He currently works as a writer at 24 news breaker, where he provides readers with in-depth analysis and commentary on the latest economic developments. With a background in finance and a talent for explaining complex economic concepts in a clear and accessible way, John’s writing is a must-read for anyone interested in staying informed about the economy.