Silicon Valley Bank SVB bankruptcy
Most have heard about the bankruptcy of the bank and its closure by the US authorities. Do you know what it is in the beginning and how does it affect the economy and Forex?
Silicon Bank is one of the largest banks in the world and is ranked 16th in the world in terms of deposits. It is an American bank that specializes in providing banking services to technology and emerging companies.
The event is a failure to secure deposits. Look at the bank located in the state of California in the Silicon Valley, which was named after the silicon chips. The valley hosted (technology companies such as Facebook, Apple, Adobe System, etc.) Real estate.
The bankruptcy of the bank affects the entire economy. For this day after day, officials are trying to make investors feel reassured.
On Wednesday before the bankruptcy crisis
The bank offered shares in the market to strengthen the financial base and provide liquidity. That is why it offered these shares and sold the bonds, causing a shock to the financial district (Wall Street) with this matter, and this thing is considered very dangerous! That is why customers, clients, investors in the bank flocked and sold shares. This is due to the organization. Everyone blames the Fed, and Biden blamed the bank’s management. The bank tried to borrow 15 billion dollars. This news terrified depositors, which led to a decline of 66% of the bank’s shares within 24 hours!! There was a large inability to pay the depositors’ interests, he sold the investment portfolio that contained the bonds and offered the shares. The bank was offering high benefits to the depositors, as one of the tools to attract liquidity to it in front of these deposit withdrawals. The bank found itself facing a liquidity crisis represented in its inability to continue paying Interest on remaining deposits, amid a slowdown in bank lending due to high interest rates globally.
When interest rates rise, the value of the bond decreases from its original value. I mean, if the bank had the value of the bond at 100 dollars, it would become less until the bank met the withdrawals of customers. It sold the bonds at a loss of 21 billion dollars. The sale took place and the loss was about 1.8 billion (long-term). .
The banks that need to pay the deposits of the depositors sold these bonds and caused huge financial losses. The interest rate on the deposit is lower than the interest rate on the bond or the securities that you see in the news about. Therefore, focus.
The low interest rate on deposits allowed corporate lending at the expense of depositors’ savings
This is the mechanism of the bank’s system, depositing money, and the bank investing it by linking 91 billion dollars of the depositors’ money in real estate bets, which are long-term bonds 30 years, due to maturity, losing about 15 billion dollars.
The interest relationship with the bond in this article (https://t.me/TPFX_finance/1558)
Now it is important to take:
The bankruptcy of large banks such as this bank leads to a decrease in confidence in the banking sector. For this, you see queues of depositors in other banks. This thing increases the demand for cash or cash, and therefore pressures the Fed to reduce interest rates, which requires easing monetary policy to compensate (https://t.me/ TPFX_finance/1498) the shortage..
How does it affect the US economy?
Losses for investors lead to a decline in confidence in financial markets in general
Customers were affected by their inability to access their money
– The decline in confidence in the banking sector. For this reason, you can see the reason for the decline in the percentage of shares of all banks significantly. This is the reason for fear of the collapse of the global banking system.
Declining economic growth, loss of job opportunities, etc
Note: The bank’s clients number 40,000, most of them are technological companies now. In the current situation, (Bank Run) resulted, that is, depositors rushed to withdraw their money.
How does it affect the dollar currency?
Loss of confidence in the entire banking system and negative effects on the local and global economy.
The decline in confidence in the banking system leads to the decline of the US dollar as a result of this, investors search for alternative currencies, as well as leads to the flow of investors’ money to other countries. For this, the government must intervene through financing to banks that have a lack of liquidity and by providing guarantees and pledges to depositors that their money is in safety .
If the banks themselves intervene through temporary financing for the banks that suffer and work to improve them, the administration shares experiences between them, which means strengthening cooperation between banking institutions.
The essence of the difference is knowledge, the science of rationality. The channel is responsible for explaining the news before and after its release (fundamental and economic analysis). Stay safe ???? (https://t.me/TPFX_finance)
