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Silicon Valley Bank, fears of contagion: so it can skip the rate hike

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Silicon Valley Bank, fears of contagion: so it can skip the rate hike

Usa, SVB crack and the domino effect

Of course, the Americans are unique in creating global financial crises, but they are also the only ones capable of stopping them. More or less. We are talking about the biggest financial crash since 2008 (Washington Mutual), that of the SVB, the bank for companies of the future that are now in danger of failing in the present. SVB was ranked 16th among American banks and, as of December 31, 2022, had approximately $209,000 million in assets and $175,400 million in deposits. But how was this gigantic flop born? The Silicon Valley Bank, whose main clients are start-ups, announced a few days ago a capital increase of about 2,000 million dollars. It was forced to seek liquidity because there were too many withdrawals in a context of rising rates. In addition, he had to sell US treasury bonds worth 21,000 million dollars, losing over 1,800 million dollars. All this, too obvious tension, has “massacred” the shares which have sold 60% of the value. Despite the bank’s official statements on its solvency, 42,000 million left the institution in 10 hours and actions were suspended.

Usa, a flop that involved the whole world

A drama that has involved stock exchanges from all over the world. But Joe Biden, the Federal Reserve, the Treasury Department, the regulatory body, ran for cover ensuring that no one would lose their money. Until now, however, reimbursement within the $250,000 amount was guaranteed, “peanuts” for start-ups that have to pay employees and industrial growth. The greater sums will be managed by the agreed administration in times to be decided. The second failed bank, the New York Signature Bank, was also part of this arrangement. And what’s happening now? Stock markets recover weakly but the hurricane is hitting other institutions: two in California, First Republic Bank and PacWest Bancorp, and the Western Alliance Bancorporation, in Arizona). And the 96% of clients have no more money, either to pay salaries or even to raise capital.

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Usa, the domino effect and government guarantees

What will happen now? Will the thousands of technology companies be able to pay salaries for the next 15th of the month? The American government, in an exceptional way, has changed its line by guaranteeing all deposits, including those exceeding 250,000 dollars. And a credit line was built at supersonic speed for banks in oxygen debt. The novelty is that the line will not be on the taxpayer’s shoulders. If the activities of the Silicon Valley Bank do not guarantee enough money, the deficit will be financed with funds from the rest of the banks. At the same time, Signature Bank, penalized by cryptocurrencies, also collapsed. 29th largest bank in the country, with $110 billion in assets and $88 billion in deposits. Account holders therefore shouldn’t lose anything but for the shareholders the situation will be different because the Government has not foreseen anything for them. Those who invest know they are taking risks. Point and stop.

So is it all over? Maybe because California’s First Republic Bank lost 61% on Wall Street’s shutdown; Western Alliance Bancorporation, of Phoenix, Arizona, 47%; Zions Bancorporation, of Utah, 25% as did Bank of Hawaii, PacWest Bancorp fell 21%. A domino that seems unstoppable because customers are choosing to transfer their funds to larger banks. And the internet helps them in these movements. Nobody shows up at the counter anymore. Heavy drops also in Europe but the real expectation is on the next rate hikes. However, someone is betting that there will be no increase precisely to avoid an increase in the crisis and contagion. We’ll see.

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