On March 10, the biggest failure of a US bank since global financial crisis was playing out in real time as a major lender to tech industry succumbed to a classic bank run.
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Silicon Valley Bank’s customers were frantically pulling their money from the California-based lender before US regulators intervened to take control. But the collapse panicked markets, piling pain on weaker financial institutions already struggling with the unintended consequences of soaring interest rates & self-inflicted wounds.
A week on, a second US regional bank — Signature Bank — has been shut down, a third — First Republic Bank (FRC) — has been propped up, & the first major threat since 2008 to a bank of global financial significance — Credit Suisse — has been averted after it was taken over by UBS.
But, the relative calm has only been restored as a result of the central banks, who serve as lenders of last resort, and some of the sector’s most powerful players providing enormous amounts of emergency liquidity.
Markets are still volatile: Since the close of trade last Wednesday, benchmark indices of shares in US and European banks have fallen 20% and 13%, respectively.
10th March Friday — SVB was taken over by the Federal Deposit Insurance Corporation (FDIC), an agency of the US government. Since Washington Mutual’s demise in 2008, it was the largest banking catastrophe in American history. The bank had suffered a multibillion-dollar loss when it sold US government bonds to raise cash to pay depositors, which set the wheels in motion 48 hours earlier. It attempted, but failed, to raise money by selling shares. That started the hysteria that ultimately brought it to an end.
On March 12, the FDIC closed down Signature Bank due to a deposit run by clients who were alarmed by SVB’s collapse. Very high proportions of uninsured deposits were used by both banks to finance their operations.
the 15th of March, 2013 Following a 30% share price decline at Credit Suisse (CS), Swiss authorities declared a backstop for the second-largest bank in the nation. The immediate market panic was soothed, but the global player is still in trouble. Customers and investors are concerned that it has a convincing plan to stop a long-term decline in business.
On Thursday, March 16, First Republic Bank was on the verge of failure as a result of clients taking their savings out. The CEO of America’s largest bank, Jamie Dimon, and US Treasury Secretary Janet Yellen developed preparations for a private sector bailout during a meeting in Washington. As a result, First Republic and a consortium of US lenders came to an arrangement to put tens of billions of dollars in cash into the company in order to stop the bleeding.
the 19th of March — In an emergency rescue plan intended to calm the financial markets, UBS, the largest bank in Switzerland, agreed to purchase its struggling rival Credit Suisse.
More than $400 billion has been invested directly to date. The US Federal Reserve has committed to guaranteeing all deposits at Silicon Valley Bank and Signature Bank for a total of $140 billion. Then there are the emergency loans totaling $54 billion that the Swiss National Bank provided to Credit Suisse and the loans totaling $225 billion that the Swiss government insured and provided to UBS.
Meanwhile, the Fed approved record-high loan amounts to other banks last week. In recent days, banks borrowed roughly $153 billion from the Fed, shattering the previous record of $112 billion established during the 2008 financial crisis.
Also, banks drew on nearly $12 billion in loans through the Fed’s brand-new emergency lending programme, which was launched at the beginning of the week in an effort to save more banks from going under.
The entire amount of $318 billion that the Fed has lent to the financial system is less than half of what was done during the world financial crisis.
According to JPMorgan’s Michael Feroli, “but it is still a substantial figure,” in a note to investors on Thursday. The gloomy perspective holds that banks desperately need funding. The system is operating as planned, according to the “glass half full” perspective.
Additionally, the banking sector has coughed up billions. A group of 11 lenders, including JPMorgan Chase, Bank of America, and Citigroup, are giving the $30 billion liquidity injection to boost trust in First Republic Bank.
According to reports, HSBC has invested almost $2 billion to SVB’s UK operation, which it purchased on Sunday for £1.
You almost likely don’t need to be concerned if you have less than $250,000 in an FDIC-insured account at a US bank. Up to $500,000 is protected for joint accounts.
The likelihood of a US recession occurring within the next 12 months has increased, according to Goldman Sachs, which made this announcement on Wednesday. The likelihood that the American economy could experience a recession within a year has increased from 25% before the start of the banking sector meltdown to 35%, according to the bank.