The global financial focus is on the bankruptcy of Silicon Valley Bank in the United States, and the market is worried that the financial crisis may detonate. Xie Jinhe, chairman of Caixun Media, said that the fire in the United States has reached its own backyard. The core issue is the violent interest rate hike by the Federal Reserve and the inversion of interest rates caused by the economic recession. The liquidity of U.S. treasury bonds has dropped to a record low. If interest rates continue to rise, the U.S. Treasury may not be able to bear it. Maybe the collapse of Silicon Valley Bank was a turning point in interest rate policy, and maybe the crisis is another turning point!
Silicon Valley bank failure may detonate financial crisis Xie Jinhe: It will be a turning point in US interest rate policy.File photo
Xie Jinhe pointed out. Due to the violent interest rate hike by the Federal Reserve, SVB was declared bankrupt due to the rigidity of its asset structure, large deposits were withdrawn, and liquidity risks emerged. After Silicon Valley Bank announced its bankruptcy, the market turned its attention to 10 regional banks. The stock prices of these named banks also plummeted. This is the core reason for the sharp drop in the Dow Jones Industrial Average this week.
Every financial crisis is caused by financial institutions. Lehman Brothers went bankrupt in 2008, and even AIG almost collapsed in the end. This is the financial tsunami triggered by the subprime mortgage crisis. After 15 years, this time it was a local bank accident! In fact, the core problem is the Fed’s violent interest rate hikes and the inversion of interest rates caused by the economic recession.
For example, Silicon Valley Bank absorbs deposits at short-term interest rates and lends at long-term interest rates. The January-month CPI 6.4%, PPI 6%, and core PCE 4.7% announced not long ago are not as good as the market expected. At this time, Powell jumped out As a warning, Larence Summers, the former Ministry of Finance, also increased his caliber and believed that interest rates should be raised by two yards in March. The expectation of raising interest rates has also increased, which also caused US stocks to plummet.
However, the shadow of the economic recession loomed large, and short-term interest rates soared. The 6-month yield once reached 5.306%. Next, in this way, it will greatly impact the regional banks with relatively weak resistance.
At the end of 2021, the stock price of SVB Financial (SIVB), the parent company of Silicon Valley Bank, which mainly serves venture capital clients in Silicon Valley, was as high as $763.22. On the 9th, it fell 60%, and the stock price fell to $82.23. Now if the capital increase does not go well, the prospects are bleak , and may trigger a chain effect, impacting other regional banks, and the subsequent domino effect may affect the Fed’s decision to raise interest rates in March.
Xie Jinhe believes that Yellen has come out with dovish voices recently. One is that the United States has reached the debt ceiling of 31.4 trillion US dollars. The higher the interest rate, the greater the pressure on the United States. Second, both Japan and China sold U.S. bonds last year. China reduced its holdings by 201.8 billion U.S. dollars, while Japan lost 222.7 billion U.S. dollars. The liquidity of U.S. treasury bonds has dropped to the lowest level in history. If interest rates continue to rise, the U.S. Treasury Department may not be able to bear it.
Perhaps the collapse of the Silicon Valley Bank was a turning point in the interest rate policy, and the U.S. bond yield fell sharply on the 10th. Perhaps the crisis is also another turning point!