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Global Financial Crisis: What You Need To Know ?

BUSINESS | B-Trams :

LONDON: A major lender to the tech industry succumbed to a typical bank run on Friday, resulting in the largest US bank failure since the global financial crisis.

Before US regulators intervened to take control, Silicon Valley Bank’s California-based customers were frantically withdrawing their funds. However, the collapse sent markets into a state of panic, wreaking havoc on weaker financial institutions already struggling with the unintended effects of rising interest rates and wounds they had caused themselves.

A week later, Signature Bank, a second regional bank in the United States, has been shut down, First Republic Bank (FRC), a third, has been saved, and Credit Suisse, the first major threat to a bank of global significance since 2008, has been avoided, at least for the time being.

However, the provision of enormous sums of emergency cash from lenders of last resort — central banks — and some of the industry’s most powerful players is what has allowed for the relative calm to be restored.

The market is still nervous: Since the close of trading on Wednesday, benchmark shares of US and European banks and insurance group have lost 20% and 13%, respectively. Friday saw a lower opening on Wall Street, and First Republic’s stock dropped about 16%.

Read More : Why US Second Largest Silicon Valley Bank Collapsed ?

SVB was taken over by the Federal Deposit Insurance Corporation (FDIC) on March 10 of this year. It was the most significant bank failure in the United States since Washington Mutual in 2008. When the bank took a multibillion-dollar loss cashing out US government bonds to pay depositors, the wheels started to fall off 48 hours earlier. To stabilize its finances, it attempted to sell shares but was unsuccessful. That sparked the panic that ultimately led to its demise.

Signature Bank shut down by the FDIC on March 12 after customers who were alarmed by SVB’s implosion ran off with their deposits. To fund their businesses, both banks had an unusually high proportion of uninsured deposits.

Wednesday, March 15: Swiss authorities announced a backstop for the country’s second-largest bank after witnessing the collapse of Credit Suisse (CS) shares by as much as 30 percent. It eased the immediate panic in the market, but the global player is still in trouble. Customers and investors are concerned that it lacks a credible strategy to halt its long-term decline.

Thursday, March 16, customers withdrew their deposits, and First Republic Bank was on the verge of collapse. Plans for a private sector rescue were formulat during a meeting between Jamie Dimon, CEO of America’s largest bank, and US Treasury Secretary Janet Yellen in Washington. In order to stop the bleeding, an agreement reached with a group of American lenders to deposit tens of billions of dollars into First Republic.

Also Read : Disturbance In Startups After US Silicon Valley Bank Collapse

So far, nearly $200 billion in direct support from the central bank. The US Federal Reserve bears the cost of guaranteeing all Silicon Valley Bank and Signature Bank deposits totaling $140 billion. The Swiss National Bank provided Credit Suisse with an emergency loan worth $54 billion.

This week, the Fed has also agreed to lend record amounts to other banks. In recent days, banks borrowed nearly $153 billion from the Fed, breaking the previous record of $112 billion set during the 2008 financial crisis.

In addition, banks utilized loans totaling nearly $12 billion from the Fed’s brand-new emergency lending program, which launched at the beginning of the week with the intention of preventing additional bank collapses.

The Fed has loaned the financial system $318 billion, or about half of what it extended during the global financial crisis.

In a note to investors on Thursday, JPMorgan’s Michael Feroli stated, “But it is still a big number.” The glass half-void view is that banks need large chunk of change. The system is functioning as intended, so the glass is half full.

Additionally, the banking sector and insurance group has contributed billions. JPMorgan Chase, Bank of America, and Citigroup are among the 11 lenders contributing the $30 billion in funding to First Republic Bank to boost confidence behave of this financial crisis.

According to reports, HSBC has committed more than $2 billion to SVB’s UK business, which it acquired for £1 on Sunday.

Also Read : Despite of Volatile Interest rates Mortgage Loan Demand Rise

If you have less than $250,000 in an account at a US bank that is insure by the FDIC, you probably don’t to worry about anything. Insurance on joint accounts is up to $500,000.

Programs are similar in operation across Europe. Each depositor in Switzerland is covered for up to 108,000 Swiss francs.

The European Union guarantees the return of €100,000 (105,431) in deposits to customers of bank failures. Joint account holders are eligible for a maximum compensation of €200,000 (210,956).

If a bank goes under in the United Kingdom, depositors can get back up to £85,000 ($102,484), and joint accounts can get back £170,000 ($204,967).

Yes is the short answer. Whether business owners looking for loans or home buyers looking for mortgages, stressed banks will pay much more attention to borrowers’ creditworthiness.

In her testimony to the Senate Finance Committee on Thursday, US Treasury Secretary Janet Yellen stated, “If banks are under stress, they might be reluctant to lend.” Credit might become more difficult to obtain and more expensive.


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