Joe Biden, addressing Americans that the financial system is safe
Bank stocks fell around the world despite US President Joe Biden’s assurances that the US financial system is safe.
This comes after the concerned authorities in the United States were forced to protect customer deposits after the collapse of Silicon Valley and Signature banks.
Biden pledged to take “whatever it takes” to protect the banking system, but there are concerns about the possibility of the collapse of other lenders affected by the consequences of the collapse of these two banks, which led to a sharp decline in bank shares worldwide.
Earlier Monday, shares of Spain’s Santander Bank and Germany’s Commerzbank fell nearly 10 percent at once. A number of smaller US banks also suffered larger losses than European banks on Monday, despite all the banks assuring their clients that they had too much liquidity to protect them from shocks.
This volatility led to speculation that the Federal Reserve may temporarily halt its plan to continue raising interest rates, which the Fed has long pursued with the aim of controlling inflation.
Biden said that individuals and companies who have deposits with Silicon Valley Bank can conduct transactions on their money starting Monday after the government intervened to fully protect their deposits.
And faced a number of companies that have deposits in the American bank, which was subject to collapse, the risk of failure to pay the salaries of their employees and the dues of suppliers after freezing their funds due to the bank crisis.
Biden pledges
US President Joe Biden said the US will do “whatever is needed” to support banks after a series of failures raised concerns about financial stability.
Biden’s comments came after the United States guaranteed all deposits at Silicon Valley Bank and Signature Bank, which collapsed last week, and as authorities attempted to prevent people from withdrawing their money from banks. While Biden called on Americans to check on the American banking system.
Taxpayers will not bear any losses from this step, which provides protection for the amounts of up to $ 250,000 in deposits that are usually insured by the government, and instead the authorities will finance these sums from the bank itself.
Biden had delivered his speech today amid fears of a broader financial crisis following the collapse of the sixteenth bank in the ranking in terms of size in addition to Bank and Signature, explaining that the authorities will do whatever is required.
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And the Silicon Valley Bank – which specializes in lending to technology companies – was closed by the US authorities, who seized its assets on Friday, which is the largest collapse of an American bank since the financial crisis in 2008, after the bank pushed towards raising funds to cover the loss from selling assets affected by high interest rates.
US authorities also said they had acquired Signature Bank, which had many clients involved in cryptocurrencies and was seen as the institution most vulnerable to collapse after Silicon Valley Bank.
There is concern that the failures that have come after the collapse of Silvergate Bank last week are indicative of problems in other companies.
Although the US financial markets were almost flat in early trading on Monday, the shares of many banks were under pressure, and shares in First Republic Bank in San Francisco fell by nearly 70% before trading stopped as investors sold the shares, fearing its collapse.
As part of their moves to restore confidence, US authorities have also unveiled a new way to give banks access to emergency funds. The Federal Reserve says it will provide assistance through a new bank term financing program, making it easier for banks to borrow from it in the event of a crisis.
Silicon Valley was seen as an important lender to early-stage businesses in the tech sector, and was the banking partner for nearly half of the US venture-backed tech and healthcare companies that listed on stock markets last year.
Elsewhere, HSBC Bank said it acquired the British Silicon Valley Bank branch for one pound sterling, while the Canadian authorities temporarily acquired the assets of the Silicon Valley Bank branch in the country.
Paul Ashworth, chief North America economist at Capital Economics, said US authorities “acted aggressively to prevent the spread of infection”.
Ashworth added that “logically speaking, this should be enough to prevent any infection from spreading and closing more banks, which can happen in the blink of an eye in the digital age. But infection has always been about irrational fear, so we stress that there are no guarantees.” That this will work.”
The measures also reignited debates about what the government should do to regulate and protect banks in the aftermath of the 2008 financial crisis.
Biden called for stricter instructions, noting that investors and bank officials would not be safe.
“They took the risk on purpose, and when you don’t pay back the losses from the risk, everyone loses their money,” Biden added. “That’s how capitalism works.”
Republican Senator Tim Scott, who is seen as a potential presidential candidate in 2024, called the bailout a problem, saying, “Building a culture of government intervention will do nothing to prevent future institutions from relying on government and snapping at it after the risk has occurred.”
Analysis: Michelle Flair – Correspondent north america for business
Again people are worried about the banks, again, there is a heated debate about bailouts, but this is not 2008.
In the aftermath of the global financial crisis, the focus was on fixing too-big-to-fail banks, but today’s problems center around medium and small banks.
Both collapsed banks had the same thing in common: their businesses were highly concentrated in one sector and they were more exposed to assets whose values were pressured by rising interest rates. The criticism is that they should have expected this but didn’t.
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US regulators shut down the Silicon Valley bank, taking control of customers’ deposits
US Federal Reserve Chairman Jerome Powell is considered one of the most transparent presidents in the history of the US central bank, taking great pains to signal the Fed’s intention to raise interest rates.
Since most banks are well diversified and have plenty of cash on hand to meet their liabilities, the assumption is that the risks to the rest of the banking sector are low. This will not stop the authorities from looking at what went wrong and what rules need to be changed.
Small and medium banks are still at risk, but it remains to be seen what will happen to the US economy and the fight against inflation.
Started in California’s Silicon Valley in 1983 and expanding rapidly over the past decade as the tech sector boomed, it was an important lender to emerging businesses and was the banking partner for nearly half of the US-backed technology and healthcare companies that listed on the stock markets last year.
The company has been under pressure in the past year as its customers increasingly turned to deposits because high interest rates made it difficult to raise new money through private fundraising or stock sales.
The disclosure prompted an acceleration of withdrawals, while raising concerns that other banks with large sums of money tied up in bonds could face potentially large losses.
Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply raised interest rates as they struggle to stabilize high prices. These moves have reduced demand for lower-yielding bonds, which could cause problems for holders of these bonds – such as Silicon Valley Bank – when conditions call for selling.
In Silicon Valley, reverberations of the crash have spread far and wide as companies grapple with questions about what it means for their finances.
Etsy and Roku were among the big-name companies with money tied up in the bank, with Etsy saying it will have to delay some payments to sellers as a result, but expects it will soon be able to team up with other financiers.