“Neither Washington Mutual (a bank that went bankrupt during the global financial crisis in 2008) nor FTX (a U.S. virtual currency exchange that went bankrupt in November last year) said there were no problems right up until the brink of bankruptcy.”
“Is it the answer to transfer to the ‘Daemabulsa’ bank?”
On the 13th (local time), depositors of small and medium-sized banks based in the U.S. argued over whether to join the ‘large-scale deposit withdrawal (bank run)’ on social media. As Silicon Valley Bank (SVB) on the 10th and Signature Bank on the 12th went bankrupt one after another, and local bank stocks such as First Republic Bank plummeted on the New York Stock Exchange on the 13th, anxiety among depositors and shareholders is rapidly amplifying.
In a speech to the public right before the stock market opened on the 13th, US President Joe Biden said, “I will fully guarantee the deposits of SVB Bank.” SVB’s ‘Bridge Bank’, established by the Federal Deposit Insurance Corporation (FDIC), also started operations. Silicon Valley information technology (IT) companies and start-ups, which are SVB’s main customers, have been freed from anxiety that they will not be able to pay their employees’ salaries. However, the market is still unable to erase the sense of crisis, ‘Where will the next bankruptcy be?’
On the New York Stock Exchange on the 13th, the shares of First Republic (-61.9%), Western Alliance (-47.1%), and Zeons (-25.72%), which are small and medium-sized banks based in the region, fell significantly. They are based in San Francisco, California, Phoenix, Arizona, and Salt Lake City, Utah, respectively.
These banks have operated by finding niche markets in special areas. SVB has also maintained close ties with wine companies in the California Bay Area as well as the tech industry. First Republic, which received $700 million (915.1 billion won) in emergency funding from the US Federal Reserve and JPMorgan amid concerns about a bank run last week, is backed by Mark Zuckerberg, CEO of Mehta, and Silicon Valley’s biggest customers. It is famous for its sales oriented. The proportion of high-end home mortgage loans is also high.
As customers were concentrated on a specific group, they were vulnerable to changes in the macro environment, such as the Fed’s high-intensity tightening. It is also pointed out that management lacked the capacity to manage the rapid increase in deposits thanks to the low interest rate policy during the pandemic. Princeton University professor Paul Krugman, winner of the Nobel Prize in Economics, pointed out on Twitter that “SVB lacked experts even though it accumulated cash (deposits).” It is a diagnosis that he was hit hard by the Fed’s interest rate hike because he did not know where to make a profit.
Moody’s, a credit rating agency, gave Signature Bank an investment grade of ‘C’ on the 13th. It said it was also considering downgrading the ratings of five U.S. regional banks, including First Republic.
Customer deposit guarantees have calmed the immediate anxiety, but there are observations that it is unclear how long small and medium-sized US banks can endure. This is because customers are already taking money out of small and medium-sized banks and moving it to large banks. “If this situation continues to escalate, small and medium-cap banks will run out of liquidity,” David Ellison, portfolio manager at the Hennessy Fund, told Reuters.
There are also concerns that this crisis could spread to large financial companies with large holdings of long-term bonds, such as Charles Schwab, the largest online stock trading company in the United States. On the 13th, Charles Schwab shares also fell 11.6%. Mike O’Rourke, chief market strategist at Jones Trading, predicted to CNN, “The biggest problem right now, the ‘crisis of confidence’, will subside only if we survive until 48 hours without further bankruptcy.”
The aftershock of the SVB crisis also hit Asian stock markets on the 14th. On the 14th, the KOSPI finished at 2,348.97, down 2.56% from the previous day. The KOSDAQ market, which is centered on growth stocks, took a bigger hit and closed at 758.05, down 3.91% from the previous day. Japan’s Nikkei Average also fell 2.19 percent. Stock markets in Taiwan and Hong Kong also fell by 1%.
Treasury yields, which pushed regional banks into crisis, were greatly shaken by the spread of the crisis. On the 13th, the two-year US Treasury bond yield closed at 4.03% per annum, down 0.57 percentage point, due to the prospect of high-intensity monetary easing by the Fed and the preference for safe assets. It was the biggest drop since Black Monday in 1987.
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Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.