Silicon Valley Bank Fall Widens Systemic Cracks As Cheap Money Disappears | – #Silicon #Valley #Bank #Fall #Widens #Systemic #Cracks #Cheap #Money #Disappears

NEW YORK, March 12 (Reuters) – Cracks are emerging in the global financial system as decades of cheap money come to an end, with some investors worried that the shock collapse of Silicon Valley Bank could be on the verge of a world market reckoning. .

Over the past year USA The Federal Reserve has embarked on its most aggressive period of rate hikes since the early 1980s, and other central banks have followed suit, leaving global investors facing mixed results.

They are from the dotcom bubble at the turn of the millennium, the collapse of the cryptocurrency industry, USA and saw the longest sell-off in tech stocks after a run on British real estate funds and the Bank of England’s intervention to prevent an imminent collapse. Britain pension funds.

on friday USA the second largest in history bank After its failure, market participants are worried about more disruptions as rising interest rates cut off access to cheap money and expose weaknesses in the economy.

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Major investors, including Kyle Bass and Bill Ackman, of the government’s collapse of Silicon Valley Bank bank they argue that it must take immediate action to prevent it from causing more widespread withdrawals in the system.

So far, the pain has been largely felt by investors and institutions placing risky bets. It remains to be seen whether the pain spreads to others and whether a new crisis emerges. This can be determined by how much the world’s central banks continue to raise interest rates.

Kyle Bass, founder and chief investment officer of Hayman Capital Management, said, “That’s it inflation “When you go into a walk maneuver so aggressively after creating, you’re going to break something,” he said.

“And what they (the Fed) are going to learn is that the speed at which they’re raising interest rates, the speed at which they’re printing money, is reckless,” said an investor with no position in SVB.

On Wednesday, Federal Reserve Chairman Jerome Powell reaffirmed his message of higher rate hikes, but emphasized that discussions are still ongoing, depending on upcoming data. US officials too bank they defended that the system is solid.

Still, signs of market anxiety have mounted in recent days: The S&P 500 fell 4.6% this week, nearly erasing gains for the year, while the Cboe Volatility Index, Wall Street’s fear gauge, rose to a 3-year high. month Two-year Treasury yields 20It saw its biggest drop since the 2008 financial crisis. That prompted a flight to safety among investors and bets that economic woes could force the Fed to ease or reverse aggressive tightening. offer does.

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US administration 20He said he saw few signs of an ’08-style financial crisis, and that failing institutions threatened to bring down others in their wake. US Treasury Secretary Janet Yellen and the White House of the US banking system 20They noted that it is more durable than the financial crisis of 2008.

The market is signaling that contagion could affect the Fed’s calculations, possibly prompting a slower pace of rate hikes. Investors are now pricing in a 38% chance the Fed will raise interest rates by 50 basis points later this month, down from a 68.3% chance seen a day earlier.

“The Fed normally tightens until something breaks,” said Jack McIntyre, portfolio manager at Brandywine Global.

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California banking regulators, 209 by the end of 2022 billion dollars 42 in one day of the depositors of the bank with assets billion dollars closed Silicon Valley Bank on Friday after its withdrawal and bankruptcy.

of Great Britain in September pension like the stock market crisis, the firm appeared to be on the wrong side of earnings growth, exposed to interest rate risk and unable to meet its obligations.

Investors looked elsewhere for vulnerabilities and avoided other banks where they perceived risks. KBW Bank index in the last two days 10It fell more than 100%, the worst decline since March 2020.

Some banks were quick to reassure. U.S. lenders First Republic Bank and Western Alliance issued statements Friday that indicated liquidity and deposits remained strong, even as shares of both companies fell more than 14%. Germany’s Commerzbank said it did not see any “relevant risk” on a day when its shares fell by 2.6%.

“Contagion risk from the collapse of SVB Financial has now caused a sell-off, ask questions later, creating a backdrop for stocks,” said Adam Turnquist, chief technical strategist at LPL Financial. He noted that less than half of the companies in the Standard & Poor’s 500 traded above their 200-day moving average, down from a sharp 79% in February.

Silicon Valley Financial Group was deeply woven into the fabric of the technology industry. It is a source of funding for startups and labour was a popular provider of fee accounting and personal wealth management.

Regulatory data shows that 89% of the bank’s $175 billion in deposits were uninsured by the end of 2022, leaving billions stranded as regulators try to find a buyer.

The tragedy struck a number of companies doing business with the bank. Most recently, the Stablecoin USD Coin (USDC) dollars lost its peg and Circle, the US firm behind the coin, fell to an all-time low after revealing that some of the reserves backing it were held by Silicon Valley Bank.

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The bank’s failure is likely to increase pressure on companies to generate revenue, ending an era in which investors were willing to endure years of losses in order to expand market share.

Bass and Ackman separately warned that the government would have to move quickly to resolve Silicon Valley Bank to reassure depositors.

“The unintended consequences of the government’s failure to guarantee SVB deposits are wide and deep and must be considered and addressed before Monday,” Ackman said in a Tweet on Saturday.

“If they don’t do it by tomorrow, we have a systemic problem,” Bass told Reuters in an interview.

Reporting by David Randall, Davide Barbuscia and Ira Iosebashvili; Edited by Megan Davies, Paritosh Bansal and Anna Driver

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2023-03-12 23:09:45
Source – reuters

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