This is not a pipe. The solution found by the American public authorities to avoid a financial panic after the bankruptcy of the Silicon Valley Bank (SVB) is worthy of Magritte: no bailout by the taxpayer, but all the bank’s customers will have their deposits guaranteed, including beyond the limit of 250,000 dollars (235,000 euros).
Above all, the Federal Reserve (Fed), the American central bank, will set up a line of credit of 25 billion dollars to make it possible to finance the establishments which could be the subject of a banking panic. “The Fed will make additional funds available to allow banks to meet the needs of all their depositorsexplained the institution in a press release, Sunday, March 12. This action will strengthen the ability of the banking system to protect deposits and ensure the continued supply of money and credit to the economy. »
Illustrating this point, the authorities will allow access to all the deposits of another establishment, New York this one, and specialized in cryptocurrencies, Signature Bank, 21e bank in the country, which was automatically closed on Sunday by the regulator, to everyone’s surprise. The President of the United States, Joe Biden, was to speak Monday morning to reassure his fellow citizens about the country’s financial system, after the bankruptcy of the two establishments. “I will comment on how we will maintain a resilient banking system to protect our historic economic recovery”he said Sunday evening in a statement from the White House.
It all started with the bankruptcy, Friday, March 10, of the Californian bank SVB, which specializes in venture capital. The Sixteenth National Bank had recklessly invested its customers’ cash in long-term US Treasury bonds. Behind this apparent good management, an irresponsible management which was unaware of the risk of rate and duration.
Indeed, this policy was carried out in the midst of the Covid-19 pandemic, when the cost of money was zero. When the Fed raised its rates, starting in March 2022, the trap closed: the value of Treasury bills fell sharply, by around 15% (when rates rise, the value of a bond falls by as much as until its yield becomes the equivalent of the new market rate).
At the same time, the bank’s customers withdrew their funds, either because they needed them in times of capital scarcity for tech, or because they found more profitable investments. Result, the bank, unable to meet its obligations, liquidated its portfolio of Treasury bills, suffering a loss of 1.8 billion dollars. It caused the panic of its customers, which made impossible the capital increase of 2.2 billion which was to save it, and was closed administratively Friday by the federal authorities.
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