Investors around the world are dumping shares in the West on fears of bank collapses spreading. In the US, Silicon Valley Bank (SVB) with it now taken into state ownership by the Federal Deposit Insurance Corporation (FDIC). The SVB collapse spooked depositors in Signature Bank with £10bn in withdrawals last Friday alone. This caused the collapse of Signature with the FDIC stepping in again. Signature’s collapse is the third largest banking collapse in US history.
The bailout though appears to be settling nerves in the US but in Europe, Credit Suisse was forced to borrow $54 billion in rescue loans from the Swiss National Bank to keep afloat as investors withdrew funds and various buyers ‘sniffing around’ to take over such as UBS and Blackrock.
Who could have predicted this? Whilst we do not believe this is over, we suggest the main panic is over but it is clear to us that banking regulators are not doing their jobs properly.
It is not ‘rocket science’ for a regulator to check on where banks are investing their assets and capital reserves. SVB was exposed heavily to government bonds to get better ‘safe haven’ returns rather than holding cash when it was covid time with negative and low interest rates hitting bank earnings (hence moving to bonds) and then tech companies flourishing as we came out of lockdown with both people and businesses buying gadgets and greater investment in business tech creating a push for tech. company borrowing too. Increases in interest rates have pushed government bond values down, so SVB simply did not have enough liquid cash as investors started to pull out money as higher costs of living and business expenses started to increase.
That said, when markets have fallen is that now the time to buy?