
Following the long period of unusually low interest rates, there was a concern at the market that when the central banks shall increase the interest rates unexpectedly, it might result in certain negative outcome. Developments at the global financial markets in the past two weeks (failing of several banks in USA and saving of Credit Suisse in Europe), have served as sharp reminder that still there is a need for compromise between tightening of the monetary policies and maintenance of financial stability.
First, the American bank, Silicon Valley declared a sale plan on the 8th of March for its shares in amount of 2,25 billion USD, at the same time declaring significant losses of its investment portfolio. As a follow up, the next day already, the shares dropped by 60%, whereby the Federal Deposit Insurance Corporation (hereinafter the FDIC) reached a decision that this bank to terminate its operation.
Although Silicon Valey was not considered as a systemic important bank, still its illiquidity has forced the Federal Reserves to act in order to prevent further “systemic infection”. Rapid intervention by FED, which managed to provide whole deposit guarantee, as well as to provide additional liquidity for other endangered banks (by valuating their collateral, treasury bills and bonds of USA per nominal price), indicates to considerable concern in relation with the “financial infection” which might possibly follow up.
Similar faith was experienced by another US bank, Signature Bank on the 12th of March. Namely, this is the 3rd largest bank in the USA history which declared bankruptcy, mainly as a result of rapid withdrawal of around 20% of entire deposit base. Though this bank has not had high exposure to the crypto market, still the regulator lost confidence in the bank management and it ended up under FDIC monitoring.