Last week’s shocking collapse of Silicon Valley Bank led to immediate fears that a significant economic crisis is right around the corner. In the most significant bank failure since the 2008 financial crisis, the Silicon Valley Bank was shut down by regulators.
Are all US banks nationwide at risk of collapsing? Raising the fear of a complete banking meltdown is the fact that the collapse of Silicon Valley Bank showed the banking sector a more significant problem, which is the between the value that the most prominent lenders place on the bonds they currently hold and what said bonds are actually worth on the market.
Silicon Valley Bank is not the only one in trouble. According to the Federal Deposit Insurance Company (FDIC), US banks are looking at $620 billion in unrealized losses. This happened when the interest rates were near zero, and the US banks rushed in to grab a bunch of bonds and Treasuries.
But as inflation took over the country, the Federal Reserve began raising rates in order to combat inflation. Because of this, the value of those bonds decreased significantly. As the interest rates climb, the new bonds begin to pay out higher rates to investors, but it also makes the older bonds less valuable.
Most US banks are beginning to see an enormous number of unrealized losses on their ledgers. Silicon Valley Bank is but the first of many US banks that paid the price. Banks are going to find out that they have much less cash on hand than they previously thought.
When they need it, they will see that their securities are worth much less than they initially expected. This is most definitely a disaster coming, as the Silicon Valley Bank found out.
New York’s Signature Bank has been shut down after regulators ruled that it posed a risk to the industry. Investors are considering an important question; will more banks fail? And if they do, which one will be next?
William Isaac, former chair of the Federal Deposit Insurance Corporation (FDIC), has no doubt that more banks will collapse, though he did not specify which ones.
As First Republic Bank shares plunged yesterday, investors wondered if it would be the next of the bank stocks to fail. The bank is based in San Francisco, California, and specifically caters to clients in high economic brackets.
Western Alliance saw shares halted amid the market chaos last week as its shares plunged. Trading has since resumed for the Phoenix, Arizona-based company, but shares are still down almost 50% for the week.
PacWest Bancorp has had significant exposure to Silicon Valley Bank due to lending and deposit activity. The bank is based in Southern California.
While fears surrounding U.S. regional banks have intensified in recent days, Moody’s has just warned that it plans to downgrade the ratings of six of them. They are First Republic Bank, Western Alliance Bancorp, Intrust Financial IFNC, UMB Financial, Zions Bancorp, and Comerica.
Moody’s ratings are widely used in the banking industry and trusted by investors. This is why it is essential. New fears for the stability of the global financial system rattled financial markets on Wednesday after Credit Suisse acknowledged it found “material weakness” in its financial reporting, adding uncertainty to the already shaky banking sector in the wake of Silicon Valley Bank’s collapse.
“Credit Suisse is not just a Swiss problem but a global one,” said Andrew Kenningham, chief Europe economist with Capital Economics. Ray Dalio, a billionaire investor, said the Silicon Valley Bank failure is a “canary in the coal mine” for what’s to come. This is part of the classic “bubble-bursting part” of the short-term debt cycle.
Credit Suisse Group shares hit a fresh record low Wednesday after a critical Saudi investor declined to provide additional support to the troubled Swiss lender in a move that amplified concerns for the health of the global financial sector.
According to a report from Bankrate conducted last year, 56% of Americans would be unable to cover an unexpected $1,000 bill with savings.
1 Timothy 6:10 For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
Matthew 6:24 No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and money.
Hebrews 13:5 Let your conversation be without covetousness; and be content with such things as ye have: for he hath said, I will never leave thee, nor forsake thee.
Proverbs 22:7 The rich ruleth over the poor, and the borrower is servant to the lender.
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