Investors in the world financial markets continue to carefully analyze the consequences that the fall of three medium-sized regional banks such as the Silicon Valley Bank (SVB), el Signature Bank y el Silvergate Bank in the U.S.
The data of the drop in annual inflation rate from 6.4% in January to 6% in February, known yesterday, helped to recover the shares of American banks, but doubts persist because it is not known whether the US Federal Reserve (FED) will modify its monetary policy.
What most analysts expect from Wall Street is for the FED to modify its policy of raising interest rates that began last year in the coming months to relieve the financial system.
The calm came from the side of the regional banks that were the most hit during the fall of the Silicon Valley Bank after the large losses they suffered between last Friday and yesterday and apparently for the moment the fear of a systemic risk has been reduced.
The fall of the SVB and uncertainty worldwide
The global financial uncertainty unleashed by the fall of Silicon Valley Bank (SVB), America’s 12th Bank, along with two other institutions such as Signature Bank and Silvergate Bank, if it spreads, it could become what specialists call a systemic risk.
Systemic risk is the possibility that an event at the business level triggers serious instability or threatens to collapse an entire industry such as the US banking industry due to the fall of those regional banks.
Global financial markets are still weighing the consequences of the failure of three midsize US regional banks.
In the case of banks, the risk is that financial institutions become insolvent because they cannot return deposits to their savers due to a financial panic event that affects other banks that in principle meet the solvency and financial soundness conditions.
This could generate a poverty effect on the US economy, with a strong impact on US stocks and bonds. The bank run that these entities had against their deposits could not be stopped because the banks were bought in American Treasury bonds that they had to sell at a loss to face the withdrawal of deposits. In the case of the SVB, this led to the decapitalization of the institution and finally the contracting authorities of the North American financial system declared its bankruptcy and the government took over the return of the investors’ deposits.
Savers will recover their deposits
The truth is that the shareholders went bankrupt, the depositors will be returned their funds, but the consequences of these bankruptcies for the USA are still not clear.
The bank was an institution that lent in particular to the technology sector, not only to the pole of Silicon Valley, that’s where its name comes from. it also offered its services to technology firms in the UK, Europe and Israel. In some cases, it offered services to start-ups from simple advisory bank accounts to companies that are generally not listed on the stock market, therefore those loans granted are more exposed.
This bench along with other commercial banks took advantage of the situation and when short-term interest rates in the US were at zero until 2021 they were loaded with long-term, low-risk US Treasury bonds.
But to the extent that la FED began to raise short-term rates to begin to reduce inflation that reached record values of 8% per year, the value of these assets fell drastically and generated large losses for the banks that they cannot afford.
“SVB Effect”: The danger of systemic risk is reduced and inflation in the US is lowered.
Towing issues since the COVID-19 pandemic
No bank can survive a run if the systemic risk spreads as it involves all of its deposits. This is because the commercial banks they do not hoard all the funds of their savers but invest or lend them to third parties and assume the risk that this entails. Therefore they can answer for a large part of your deposits but not for all of them at the same time.
The problem is that from the end of lto pandemic some banks in the US filled their portfolios with US Treasury securities and lent at rates of almost 0% until last year the US Federal Reserve (FED) decided to start raising the short-term rate that today it reaches 4.5% per year and could continue to rise.
With respect to evolution of the US economy, a recent work by Investing in the Stock Market (IEB) describes that: “January data on employment, consumer spending, manufacturing production and inflation have partly reversed the trends we had seen just a month ago.”
The report further adds that “the inflationary pressures are being higher than those observed at the time of the last FOMC meeting.
In the US, inflation began to ease
It also highlights that inflation has moderated somewhat since the middle of last year, but remains well above the Fed Committee’s long-term target of 2%.
However, there are few signs of disinflation in the basic services category, excluding housing, which accounts for more than half of basic consumption expenditures.
In the US, inflation has eased somewhat since the middle of last year, but remains above the Fed Committee’s long-term target of 2%
On the other hand, the US economic growth has slowed but surprisingly the job market is still extremely tight.
Job creation remains very strong, while labor supply continues to lag.
A scenario that does not favor Argentina
What is also likely is that if the Fed does not modify its monetary policy, stocks, bonds, commodities and cryptocurrencies could be affected in the short term, while US Treasury bonds could rise in a scenario of financial uncertainty. world with a dollar revaluing against the challenge of the currencies a scenario that would not favor Argentina.
The specialist Salvador DiStefano explained to iProfessional that “in Argentina, stocks and bonds will be affected by international uncertainty. At the local level, the market has not yet digested the failure of the exchange of bonds in pesos, which was very low for the private sector. There are many bonds to be renewed in the coming months and the market would seem to have chosen arbitrage to alternative dollars, which is reflected in the rise of the MEP and CCL dollar”.
Di Stefano added that he does not see a rise in the Dolar bluedue to the greater offer in said market, which is at the mercy of a selling market due to a drought that leaves the BCRA without reserves but considered that the arrival of some 5,200 million dollars in reimbursements announced by the IMF will help to improve the situation a little .
Until now it was said that the rise would culminate in 5.25% per year, now the target would be 6.0% per year. Currently it is located in the range between 4.50% and 4.75% per year. The next meeting of the RFederal Reserve It is March 21 and 22.
US economic growth has slowed, but surprisingly the job market remains extremely tight
The financial world on alert
The truth is that after the strong statements on Wednesday of last week by the president of the FED,Jerome Powellthe financial world was put on alert. The problem is that after their declarations, three medium-sized regional banks such as Silicon Valley Bank and the Silvergate Bank and the Signature Bankk literally went bankrupt unleashing a wave of panic in the markets. In particular from the US and the UK.
What Powell pointed out last Wednesday in his presentation of the future monetary policy before Congress to make a brief summary was that it was likely that the Fed would raise short-term interest rates again on March 22 and that the rise could be extended throughout this year.
In this sense, the Director of Investing in the Stock Market (IEB), the economist Norberto Sosa, pointed out to iProfessional that “you have to be very attentive with the movements of rates in the US since in 2022, the ceiling of the range began at 0.25 and ended at 4.50% and in the first meeting of the FED of this year they raised it again 25 basis points and it is expected to continue rising to at least 5.50%.The economist added that it would be necessary to rule out that in this context the FED modifies its policy of raising interest rates.
As background, it should be noted that between 2004 and 2006 the FED raised the short-term rate from 1 to 5% and then in 2007 the subprime crisis broke out in the US to end in August 2008 with the resounding fall of the investment bank Lehman Brothers. In the case of the three bankrupt banks, the analysts of Wall Street They explain that these are banks closely related to financing fintech and companies that developed in the so-called world of cryptocurrencies. For now, we will have to wait for what happens this week in the US financial system, where there would be another bank in San Francisco with serious solvency and liquidity problems, but for the moment the possibility of systemic risk has been reduced.
