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Bankrupt banks find new owners… Will the US banking crisis subside?

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Expectations are rising that the financial market will find stability as Silicon Valley Bank (SVB), which triggered the US banking crisis, is looking for a new owner. However, there is also an analysis that market concerns still remain as the insolvency concerns that have spread to US provincial and global banks have not yet evolved.

According to foreign media such as the Wall Street Journal (WSJ) and CNBC on the 26th (local time), the US Federal Deposit Insurance Corporation (FDIC) announced in a statement that First Citizens Bank had agreed to acquire all loans, deposits and branches of SVB. revealed

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First Citizens will acquire SVB’s assets worth $72 billion (approximately KRW 93.6 trillion) for $16.5 billion (approximately KRW 21.4 trillion). The $90 billion (approximately 117 trillion won) worth of securities held by SVB will remain under court receivership.

On the 10th, the California Department of Financial Protection and Innovation shut down the insolvent SVB and appointed the Federal Deposit Insurance Corporation (FDIC) as the bankruptcy trustee. The FDIC set up a corporation called ‘Santa Clara Deposit Insurance National Bank’ to transfer SVB’s assets.

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SVB’s bankruptcy is the second largest in U.S. history after Washington Mutual, which collapsed during the 2008 global financial crisis.

The FDIC started the auction process for SVB assets on the 11th, but ended without results. No big banks bid, and one said it would take over, but the FDIC reportedly turned it down.

In the subsequent sale process, First Citizens was decided as the acquirer. First Citizens and Valley National Bancorp participated in the sale bid that ended on the 24th, and First Citizens won.

First Citizens is a small and medium-sized bank headquartered in Raleigh, North Carolina. As of 2022, it is the 30th largest commercial bank in the United States with total assets of $109.3 billion (approximately 142 trillion won). With the acquisition of SVB on this day, it ranked in the top 25 by assets.

As banks that declared bankruptcy like this are looking for new owners one after another, expectations are rising that the global banking crisis that started in the United States will subside.

Signature Bank, which previously collapsed in the aftermath of the bankruptcy of SVB, also sold deposits and some loan assets to Flagstar Bank, a subsidiary of New York Community Bank Corp. (NYCB).

Credit Suisse (CS), a global investment bank (IB) in Switzerland, which was engulfed in crisis rumors, is also in the process of merging with rival UBS. UBS has agreed to acquire CS for 3 billion Swiss francs (approximately 3.2 billion dollars, 4.2 trillion won).

However, the WSJ analyzed that it is easy to find signs that the market has not calmed down yet.

First of all, rumors of a crisis that spread widely to US provincial banks are not going away easily. First Republic Bank is on the verge of bankruptcy, with its stock price plummeting by more than 90 percent, despite large U.S. banks supplying liquidity.

Deposit withdrawals are continuing as customers’ trust in US provincial banks has not been restored.

According to statistics released by the US Federal Reserve (Fed · Fed), small bank deposits for a week until the last 15th recorded a decrease of $ 119 billion (about 154 trillion won) to $ 5.46 trillion.

This is a two-fold decrease from the previous week and the largest decrease since the week of March 16, 2007.

Rumors of a global bank crisis are also acting as a negative factor as they continue to erupt.

As the stock price of Deutsche Bank, a large bank in Germany, plummeted last week, concerns were raised that it would collapse in the next order after CS.

WSJ analyzed that considering Deutsche Bank’s profitability and stability, it cannot lead to bankruptcy. It is a diagnosis that the crisis rumors are due to the influence of fearful market sentiment.

Financial authorities in each country are providing support such as liquidity supply to prevent bank insolvency from spreading. But there are warnings that a banking crisis could lead to a recession.

Christina Georgieva, managing director of the International Monetary Fund (IMF), said that while the actions of developed countries have eased market tensions, the risk to financial stability has increased as debt levels have risen.

Federal Reserve Bank of Minneapolis (Yeoneun) President Neil Kashkari also appeared on CBS’s “Face the Nation” program that day and said, “It is definitely closer (to a recession)” to a question about the impact of the banking sector crisis on the economy.

“It is unclear how far the banking crisis is leading to a broader credit crisis,” Kashkari said. “We are watching closely to see if the credit crunch will slow the economy.”

Source: Donga

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