After March 8, 2023, one of the most discussed news in the world economy is the collapse of the stock market and the collapse of the banking sector in the United States, and, as a consequence, the expectation of a similar scenario spread to the banking systems of European and Asian countries, the threat of a new global economic crisis and the possibility of a repeat of the Great Depression of 2008.
Three banks - Silvergate, Silicon Valley Bank and Signature Bank - stopped working in the United States during the last week. The total value of the assets of these banks is equal to 333 billion dollars.
One of the closed banks that has an impact on the country's economy is Silicon Valley Bank (SVB). Recognized in 2022 as the 16th largest bank in the U.S. and the largest bank in California, Silicon Valley Bank was focused on cryptocurrency deposits and Silicon Valley tech startups.
On March 8, 2023, customers withdrew $42 billion from Silicon Valley, so the bank's stock fell more than 60 percent in premarket trading. Economists attribute the crux of SVB's problem to package impairment losses: the value of the bonds in which the bank's funds were placed fell as key market rates rose.
Several other U.S. banks are facing similar problems. Rising interest rates are making banks' assets less valuable. Existing bonds are becoming much cheaper. Loan servicing for banks is also becoming very expensive.
The bankruptcy list includes banks that specialized in working with crypto exchanges and crypto projects: Silvergate, which provided loans secured by crypto assets, which raised questions in connection with the bankruptcy of crypto exchange FTX, and Signature Bank, which attracted customer deposits in digital assets, but did not invest in cryptocurrency assets and did not provide loans secured by such assets.
A number of U.S. banks suspended trading on March 10 due to a drop in the value of securities by several dozen percent, which affected the entire U.S. banking sector.
As some world experts note, regulators are taking prompt measures to prevent the crisis, but investors fear that the problems of the U.S. banking sector are still systemic in nature. The root cause of the problems is called the strategy of increasing the rate of the U.S. Federal Reserve System, which was chosen to combat inflation during the previous year.
The media noted that the past trading week was the worst for bank stocks since the beginning of the coronavirus pandemic. Traders are now assessing the likelihood of the Fed refusing to raise rates further and the possibility of a rate cut before the end of 2023
The instability of the global economy has shown that investing in securities and deposits is not always profitable and, more importantly, not safe.
Investment company Vera Fund recommends its clients to invest in stable assets which are less dependent on financial crises! Namely - in real estate!