April 24, 2024
    1. Will central banks pause interest rate hikes?

      Dharshini David

      Economics Correspondent

      Bonds, used by governments to borrow from financial markets, rarely make headlines – unless something’s seriously up. The interest rate they have to offer to lure investors to buy them echoes expectations of the interest rates set by central banks.

      But the collapse of SVB is causing many in America to adjust those expectations. Just days ago, investors assumed that taming inflation was the Federal Reserve’s priority and that interest rates would be hiked again this month.

      SVB’s collapse was precipitated by the effect of rising interest rates on its investments. And so now, as investors wake up to the risks rising rates pose to some banks fortunes, they’re increasingly expecting central bankers to pause and instead reinforce stability for the financial system.

      That retreat in expectations has prompted a corresponding fall in the return on bonds, the biggest since 1987.

      Such volatility can also signal a drop in investor confidence, rightly or wrongly. Investors aren’t expecting a rerun of the 2008 financial crisis – but they’re uneasy over what may yet be uncovered.

    2. What are the banks known for?

      And now on to Signature Bank:

      • Founded in 2001 and based in New York, it was the 29th largest bank in the US at the end of last year.
      • It was known for catering to commercial property firms – another sector under stress.
      • It also banked some of the largest crypto brokers and worked with clients such as Coinbase and Circle.
      • Its clients included Sweden’s largest pension fund, Alecta and Norway’s sovereign wealth fund.
  1. What are the banks known for?

    Let’s start with Silicon Valley Bank, or SVB:

    • SVB was founded in 1983 and had deep roots in the Bay Area, where it was a big lender to local sectors, like the wine industry and the tech world. Its clients included startups such as vegan food giant Beyond Meat, networking firm Cisco, Vox Media and software firm DocuSign.
    • It opened its first overseas offices in 2004, and expanded rapidly over the last decade, riding the tech boom to become America’s 16th largest bank. Many analysts thought it was in solid shape – it made the Forbes list of best banks just this year.
    • SVB made money providing loans and other basic banking services, as well as through fund and asset management servicesinvesting in firms alongside venture capital companies and underwriting tech IPOs.
    • Around 40% of UK biotech firms, which develop many of the countries medicines, were banking with SVB’s British section. Due to the multiple years it can take to develop a drug, early-stage biotech firms often heavily rely on start-up friendly banks like SVB.
  2. Goldman Sachs no longer expects Fed to hike rates

    Michelle Fleury

    BBC World News Correspondent

    The US Federal Reserve’s next interest rate setting meeting is on March 21-22.

    The Fed was expected to pick up the pace of rate hikes following comments last week by Jerome Powell, the head of America’s central bank.

    But for some on Wall Street, the tumult in the banking sector in the wake of problems at Silicon Valley Bank has changed that calculation.

    Economists at Goldman Sachs no longer expect the Fed to raise rates next week. Before this week, they had forecast a quarter point increase.

    In a note to clients, they wrote:

    Quote Message: We think that Fed officials will worry that another interest rate hike could be counterproductive to efforts by US policymakers to shore up the financial system.

    Even after US authorities moved to reassure Americans their money is safe, concerns remain that regional banks with a high share of uninsured deposits could see customers pull their money out.

    So for now, analysts at Goldman Sachs are betting the Federal Reserve will prioritise financial stability fears over its fight against inflation.

  3. Bank runs in the era of mass social media

    Faisal Islam

    Economics editor

    Panic has unfolded at SVB at a time of mass social media, when vast sums of money can be moved at the click of a mouse or touch of a smartphone.

    For banks, it creates the potential for big movements in deposit bases in real time, making crises of confidence significantly more difficult to manage.

    We’ve already seen this change play out in the stock market, where for awhile all attention was on meme stocks, like GameStop, with shares rising and falling based on Reddit sentiment.

    Imagine the 2008 financial crisis with TikTok, Twitter, Instagram and WhatsApp – and how easy it would be to spread rumours from seemingly credible posters.

  4. How did Silicon Valley Bank collapse?

    Let’s take a step back, for those just joining us.

    Silicon Valley Bank (SVB) was shut down by regulators who seized its assets on Friday.

    It came after the bank was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates.

    Word of the troubles led customers to race to withdraw funds, and ultimately to its collapse.

    On Sunday, US authorities also moved to take over another institution – Signature Bank of New York. It had many clients involved in crypto and was seen as the institution most vulnerable to a similar bank run after SVB.

  5. Huge relief for toy retailer Camp

    Natalie Sherman

    New York business reporter

    Ben Kaufman, chief executive of toy retailer Camp, said the US government’s move to secure deposits at SVB, where his firm had about 85% of its cash, was a huge relief.His company drew attention last week, when it put out a plea to customers to buy its toys, citing the SVB meltdown and offering a discount using the code bankrun.

    Camp ultimately sold more than 100,000 products in 48 hours – as much business as it typically does in a month, Mr Kaufman told the BBC.

    “We knew that this would resolve itself somehow but we knew we needed that short-term liquidity and our customers provided it for us,” he said.

    “For us, it was very helpful,” he added, of the government’s guarantee for unsecured deposits. “I’m not an economist so I don’t know the ramifications of this but I know that as a business operator we rely on the cash that we have in the bank.”

    Camp CEO Ben Kaufman
  6. People queue at California SVB branch

    James Clayton

    North America technology reporter

    Image shows a queue at the branch

    I’m at a branch of Silicon Valley Bank in Menlo Park, Silicon Valley. It looks less like a bank branch and more a sleepy office space tucked away in a thicket of redwoods in the heart of techland.

    It’s a plush office aimed at rich clientele.

    There are about 25 people waiting in line here – and they are slowly entering the building one at a time. One customer told me the bank is not allowing wire transfers at the branch but they are issuing cashier’s cheques to speed up the process.

  7. US markets relatively calm

    Financial markets in the US have been jittery for months and the collapse of SVB led to big falls on the main stock indexes last week.

    But in the US the main indexes remain relatively calm at the moment.

    Though investors are dumping shares of some banks, the Dow, S&P 500 and Nasdaq have been flat or positive for much of the day.

    That could be a sign that many investors expect this crisis to remain contained.

  8. Why should I care if share prices fall?

    Noor Nanji

    Business reporter

    Big shifts in the stock market are often in the news, and for good reason, as their performance can affect your life and finances.

    Even if you don’t invest money directly yourself, there are millions of people with a pension – either private or through work – who will see their savings invested by pension schemes. The value of their savings pot is influenced by the performance of these investments.

    So big rises or falls in share prices can affect your pension, although pension savings are usually a long-term bet.

    Anyone who has a pension pot invested and is taking an income from it will again see their investment go up and down with the stock markets.

    That could mean getting less than you expected if you cash in too much after stock markets have fallen, making it important to plan how to make up any of this shortfall, experts say.

    So “the markets” matter – maybe not as much as everyday wages, but for the future.

  9. Companies relieved by US move to shore up deposits

    James Clayton

    North America technology reporter

    One start-up founder spent a nervous weekend continually refreshing the page on his SVB online banking app.

    Around 40% of the company’s funds are stuck in the bank – but he hopes to get them out today.

    He is – perhaps unsurprisingly – delighted by news his funds are safe.

    “I spent the weekend talking to my new hires, trying to prevent a panic within the organisation, and on the phone with my VP of finance,” he said.

    “Everyone is a bit shaken up, but in the end, I don’t think any jobs will be lost, and it appears that taxpayers won’t have to cover the depositors, which seems like a fair resolution.”

  10. Here’s what to know

    • Two banks collapsed over the weekend – Silicon Valley Bank and Signature Bank. SVB had scrambled to raise money to plug a loss from the sale of assets affected by higher interest rates. Word of the troubles led customers to race to withdraw funds, leading to the crisis
    • President Biden is trying to calm the waters – Americans should “rest assured that our banking system is safe”, he said earlier. “We’ll do whatever is needed.” He also said he’d seek to hold those responsible to account
    • And US regulators are working to restore confidence – They unveiled a new way to give banks access to emergency funds, making it easier for banks to borrow from it in a crisis
    • The markets have reacted nervously – Shares in regional US banks tumbled. First Republic bank, which is based in San Francisco, plunged roughly 70% before trading was halted. In Europe, bank shares dropped sharply reflecting fears of wider instability
  11. Fear driving fall in markets – fund manager

    Noor Nanji

    Business reporter

    George Godber, fund manager at Polar Capital, says markets are falling because of “a fear of what else might lie out there”.

    “The imminent crisis may have been averted but it’s alerted people to the fact that there’s a group of companies out there with business models who will struggle in a high interest rate environment – as that’s what’s undone SVB,” Mr Godber says.

    He adds that the direct impact on the UK economy and UK market was limited “because the UK financial sector is really healthy and well capitalised”.

European shares tumble as investors worry

Stock markets in Europe have fallen as investors remain spooked by the collapse of the the two US banks, despite efforts to limit the fallout.

Bank shares dropped sharply, with Commerzbank and Credit Suisse both down 10%, and Santander down 7%, reflecting fears over the health of the sector.

Stock markets in Frankfurt, Paris and Milan suffered sharp losses.

In London, the FTSE 100 index was down 2.3%, with shares falling even after HSBC agreed to buy SVB’s UK arm.

US markets were flat, recovering after initially being dragged lower by banks.

 

 

 

Credit: bbc.com

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