The problems that caused the collapse of the Silicon Valley Bank were fueled by rates Fed interest and give it new technologieswhich means that today the bank run has another face, according to Stephen SchwarzmanCEO of Blackstone.
Furthermore, according to the Blackstone CEO, the recent banking turmoil is unlikely to turn into a broader crisis affecting the entire US financial sector.
“The banking system is not in any conventional kind of crisis,” he said Schwarzman in an interview with Bloomberg. “We just have a temporary problem with high interest rates and a problem with deposits caused by technology.”
“And both problems are solvable for the vast number of banks,” added the CEO of Blackstone, the largest private equity firm in the world with $975 billion of assets under management.
SVB collapse, the role of FED rates and online banking
The collapse of the SVB in early March triggered a broad-based sell-off in the banking sector and hit regional banks, which are currently unregulated, particularly hard, fueling fears that it would turn into a domino effect.
But some analysts now see those banks as a buying opportunity for investors, for example research firm CFRA says the steep markdowns represent a steep discount on some big banks.
SVB shares plunged on the stock market following the revelation of a huge hole in its bond portfolio equal to approx 2 billion dollars, which had fallen due to the Federal Reserve’s aggressive rate policy over the past year. At the recent meeting in March, the Fed raised interest rates by another 25 basis points, bringing them to the range between 4.75% and 5%.
Schwarzman also highlighted another factor that caused the bankruptcy of the Californian bank, the digital banking or also called online banking which allowed depositors to try and withdraw a staggering amount of $500.000 per second over a 24-hour period.
Beyond the problems caused by the FED’s rate policies and access to online banking, another big culprit for the rapid collapse of the SVB was also social media.
“This crisis was caused by people on cellphones hearing on social media that some bank might be in trouble,” Schwarzman told Bloomberg. “They responded with huge withdrawals in a very short period of time, crashing the bank.”
And for this very reason Schwarzman is not worried that the crisis could spread to other regional banks and the banking system in general. This also includes the private equity industry, where investors lock up their money for an extended period.
“It is important to understand that the risk related to the banking system is really limited because of the deposits and has almost nothing to do with other types of financial institutions that have no obligation to give people their money back instantly,” concluded Schwarzman.