Within three days, two banks in the United States announced their closure. How would it affect international trade?
On March 12, the U.S. Department of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation issued a joint statement announcing that the U.S. Signature Bank was closed by the New York State Department of Financial Services on the same day due to systemic risks. This is the second U.S. bank to be closed in three days, following Silicon Valley Bank. Bank closures occurred one after another in the United States, forcing the U.S. federal government to act urgently to prevent the effect from overwhelming the financial industry and even the entire economy.
High-interest rate environment
On the 12th local time, U.S. Treasury Secretary Yellen said in an interview with the media that although the technology industry has been suffering from the impact of the economic recession and there have been large-scale layoffs, the core of Silicon Valley Bank’s problems is not the problem of the technology industry. In a higher interest rate environment, the market value of financial assets such as bonds held by the bank has been falling. The U.S. Treasury Department, the Federal Reserve Board, and the Federal Deposit Insurance Corporation issued a joint statement on the 12th, announcing that they will provide full protection to all depositors of Silicon Valley Bank.
The closure of Silicon Valley Bank highlights the negative impact of the Federal Reserve’s aggressive interest rate hikes. In the past few years, American start-ups have attracted a large amount of venture capital, the Federal Reserve has maintained ultra-low interest rates, and Silicon Valley Bank has made a lot of money. However, in response to high inflation, the Federal Reserve has raised interest rates several times since last year, coupled with the recent large-scale layoffs in the U.S. technology industry, technology stocks have been hit, venture capital has decreased, and start-ups have withdrawn their deposits.
Many countries urgently respond to the thunderstorm
As the collapse of Silicon Valley banks continues to simmer, global financial markets have been hit. On the 13th, after negotiations between the British Treasury and the Bank of England, HSBC formally acquired the UK branch of Silicon Valley Bank at a price of £1. Canada’s banking regulator has also temporarily taken over Silicon Valley Bank’s Canadian branch. The impact of the closure of Silicon Valley Bank continues to simmer, and many other U.S. regional banks serving technology companies have also been affected. According to reports, the closure of the Silicon Valley Bank in the United States triggered shocks in European stock markets. On the 13th, the Euro Stoxx 50 Index, the British FTSE 100 Index, and the German DAX Index all fell. A number of bank stocks also fell sharply, with Credit Suisse falling more than 15%.
Fed announces new financing plan
The U.S. Federal Reserve Board announced a new bank term financing plan on the 12th, which will provide loans to qualified savings institutions to ensure that the latter has the ability to meet the needs of depositors in the context of the bankruptcy of Silicon Valley Bank. The Fed said in a statement that banks, savings associations, credit unions, and other eligible thrift institutions can obtain loans with a term of up to one year by collateralizing U.S. Treasury securities, agency debt and mortgage-backed securities, and other eligible assets, for up to one year.
The California Financial Protection and Innovation Bureau announced on the 10th that it has legally taken over Silicon Valley Bank, a regional bank that mainly serves start-ups, and assigned the Federal Deposit Insurance Corporation of the United States to manage the liquidation of Silicon Valley Bank because of insufficient liquidity and solvency of Silicon Valley Bank. It was the largest bank closure in the US since September 2008. The bankruptcy of Silicon Valley Bank has exacerbated market concerns about the turmoil in the US financial system, especially technology start-ups, in the context of the Federal Reserve’s aggressive interest rate hikes.
The impact in China is mainly reflected in some aspects
The first is the export of the technology industry chain. Since the companies involved in SVB Bank’s industries are all technology-based companies, companies in the technology industry are the most affected. If technology companies go bankrupt due to this incident, it will undoubtedly affect the export of products in the technology-related industrial chain. Followed by the spread of panic and the flight of international capital. The liquidity crisis will lead to serious liquidity deflation, and overseas investment institutions will sell assets due to tight liquidity. Funds were further returned to the United States for self-insurance, which triggered adjustments in the global financial market. If the world falls into a deep recession, external demand will decline sharply and trade will shrink. If the risk is allowed to spread, it will cause the small banks with tight liquidity in the United States to take the lead in thunderstorms, and then spread to medium and large banks, and enterprises will fall into a balance sheet recession, affecting global demand finally.
