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Crisis Spreads » Perspective

Crisis Spreads » Perspective

Since the crash of Silicon Valley Bank (SVB) last Friday, the US government has been injecting large amounts of capital to avoid bankruptcy and a possible bank collapse. The effects are now being felt outside the United States.

After SVB, the sixth largest bank in the United States, unexpectedly closed last Friday, March 10, the Federal Deposit Insurance Corporation (FDIC) is trying everything to prevent the crisis from spreading to other banks. As an investment bank for technology start-ups in Silicon Valley, the bank focused on high-risk investments called “venture capital”.

As a result of interest rate hikes by the US Federal Reserve, SVB’s long-term investments were heavily depreciated, and the bank was forced to sell more than two billion dollars of them to continue meeting its payment obligations. its creditors. The news triggered a so-called “bank run”: a lot of customers tried to get their money, many of whom had significant amounts of funds in SVB. As a result, the bank had to close due to lack of capital – it went broke.

Save investors

Typically, investors are insured up to $250,000 with SVB. However, the FDIC has recognized that expansion to other banks is not impossible and that there is a systemic risk. This exemption makes it possible for investors to withdraw their entire capital. The bank mainly affected corporate customers who had more than $250,000 in the bank, but not private customers.

This leads to the question of whether the FDIC would have done the same if it had been so victimized. It is not possible for small private clients as there is none Millionaire investors General pressure Should have done to protect them with such 100% guarantee. That is why such investments are very risky: the entire capital can be lost. With a 100% guarantee, on the other hand, this risk is eliminated by nationalizing profits, which would provide a false incentive to invest risky money in the future.

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The extent of the crisis

On the one hand, the central bank continues to insist that it is not comparable to the banking crisis of 2008, when the Lehman Brothers bank collapsed, and on the other hand, the responsible authorities already between March 9 and 15 More money was paid into the banking system than the crisis of 15 years ago. However, it remains true that SVB has 3,600 customers for the banking system so far Less important than the Lehman Brothers bank involved Then, that’s why a complete collapse can’t be expected yet.

Summary of Credit Suisse

Credit Suisse (CS) is the second largest bank in Switzerland and one of the largest in the world. In recent years, the bank’s reputation has gone Many scandals Damaged. On Wednesday, March 15, the bank’s shares fell to a record low of €1.55 after major shareholder Saudi National Bank announced it would not allocate additional capital to the bailout.

Therefore, the CS is now forced to accept what is offered 50 billion francs from the Swiss National Bank Debt in fact. Because the collapse of this bank would have had devastating consequences for the global economic system due to its size compared to the SVB. Yet, despite yesterday’s rescue efforts, the bank is still heading for a record low.

The extent to which the global financial crisis is imminent is not yet certain, but its symptoms have worsened globally since the CS flounder – despite massive intervention by US regulators.