The Fed flies to the aid of US banks

To avoid a crisis of confidence that could trigger a chain reaction in other banks, US regulators have announced a series of measures to reassure customers about the soundness of the financial system.

The Deposit Insurance Agency (FDIC) said it would resolve the SVB issue in a way that “fully protects all depositors,” the report said.French media agency.

The Fed also announced a $25 billion funding program that offers one-year loans to institutions on looser terms than it usually does.

Treasury Secretary Janet Yellen said the measures would protect “all depositors,” including those whose accounts exceed the usual $250,000 threshold for FDIC insurance.

Fed tightening

The current setbacks for commercial banks have to do with the Fed’s drastic monetary tightening in recent months, analysts say. In fact, SVB had chosen to invest the significant cash accumulated during the pandemic in medium and long-term bonds. However, due to the meteoric rise in interest rates, the stock of long-term loans has seen its value fall by between 20 and 30%.

According to a senior Treasury official quoted by investment news, other US banks could find themselves in situations similar to those of SVB and Signature. The priority is to guarantee companies and households the payment of their deposits, he added.

Next rate hike?

According to analysts, this situation could lead the Fed to reconsider an additional 50 basis point increase in its key rate next week. JPMorgan experts maintained their expectation of a rate hike, while Goldman Sachs experts no longer expect the central bank to raise rates.

There Silicon Valley Bank (SVB) bankruptcy created a shock wave in countries where the bank had a local subsidiary. In the UK, HSBC bought the UK branch for a symbolic pound. In Germany, the financial supervisor closed the local branch of the bank.

In Canada, the Office of the Superintendent of Financial Institutions temporarily took control of the Canadian subsidiary of the Toronto-based bank over the weekend. He also stated his intention to take permanent control of the institution’s assets, in addition to requesting the Attorney General of Canada to seek a liquidation order.

Vince Fernandez

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