The collapse of Silicon Valley Bank will lead the Fed to pivot?

977Iti

The collapse of Silicon Valley Bank will lead the Fed to pivot? Ou Yaowei: If interest rates rise, it will trigger another wave of panic.

Firstly, the Federal Reserve's continuous aggressive interest rate hikes have led to increased borrowing costs, dampening the momentum of tech stocks. This makes it harder for SVB's core customer base to access new funds, causing startups to continue burning through cash and accelerating the outflow of funds, indirectly affecting SVB's development.

Secondly, Silicon Valley Bank's business dealings mainly involve venture capital firms, but the tightening of funds has led to a depletion of venture capital, forcing startups to use SVB's funds. When clients rapidly withdraw funds, Silicon Valley Bank also faces significant unrealized bond losses, leading to the need to sell bonds and stocks in large quantities.

Thirdly, there is a mismatch in the maturity of Silicon Valley Bank's own products. Typically, commercial banks do not heavily allocate investment positions to long-term bonds. However, due to the Federal Reserve's QE policies causing bond rates to decrease, short-term bond rates are not attractive, leading to a shift towards long-term government bonds. However, as interest rates rise, bond prices fall, and the longer the maturity, the more the price is affected by bond yields, putting pressure on banks. The spread between 10-year bond yields widened to over 1,000 basis points on Friday, leading to liquidity problems and being a major cause of Silicon Valley Bank's bankruptcy.

Bill Ackman, founder of hedge fund company Pershing Square Capital Management, tweeted that this event suddenly made the whole world aware of what "unsecured deposits" mean. He believes that unless large banks like Citigroup and JPMorgan Chase suddenly agree to acquire Silicon Valley Bank before Monday's opening (Taiwan time, the evening of the 13th), or unless the US government is willing to guarantee the rights of all depositors in this bank, apart from the well-known large banks, many others may face more problems.

Iravan774

Panic is always going to exist.

Samiksha

Bank closures don't need to be overinterpreted.

Ritu77

This is quite possible.

Nimmi373

There's no need to be overly nervous about this.