US banks borrowed $164.8 billion from the Fed last week, Bloomberg reported. This is the highest since the 2008 crisis. Then the volume of borrowings amounted to $ 111 billion. The week before, banks borrowed only $ 4.58 billion. This happened after the announcement of the collapse of two American banks – Silicon Valley Bank and Signature Bank. What are the prospects for the development of the American banking system, can these events affect the economy of the world and the Russian Federation, and how stable are Russian banks, in turn?
System error
Silicon Valley Bank was one of the top 20 US banks by assets. Bankruptcy was not hindered by the US Treasury. Almost immediately, the Fed announced an emergency launch of the Bank Credit Facility Program (BTFP) to deal with the liquidity crisis. It is assumed that almost $165 billion is just the beginning, there are statements about injections of $2 trillion to support the banking sector.
Moody’s has already downgraded the banking industry from stable to negative as the operating environment deteriorated rapidly. Meanwhile, according to the assurances of the US federal authorities, nothing threatens ordinary taxpayers. But despite the statements of the American president, the US banking system is in crisis, said Yulia Makarenko, deputy director of the Banking Development Institute.
- If Silicon Valley Bank and Signature Bank went bankrupt solely because of their own high-risk policy, then, firstly, the authorities would prefer to sanitize and save them – nobody needs panic in the market and among the population. Yes, and it would be cheaper than saving everyone at once. And secondly, they would not have made decisions on lending to banking market participants as hastily as it happened – within a week. This money will be used to patch up operating holes in order to prevent the “domino effect” of the rest of the top 20 players. This behavior of the Fed proves that the problem is still systemic, and therefore more serious. By sacrificing a few banks, they hope to save the rest, she explains.
According to the financier, the Russian Central Bank will study the practice of regulation more closely, and may revise the key rate to minimize risks.
The steps taken by the US Federal Reserve will inevitably affect the economies of other countries – hitting those developing and dependent on the American system the hardest. Let me remind you that the US national debt exceeds $31 trillion. And American banks are connected with organizations around the world, she adds.
At the same time, she says, the Russian economy, despite attempts to isolate it from the rest of the world, is subject to global trends.
Although to a lesser extent – this is the case when “misfortune helped”, – only the “wave” from counterparty countries will affect the Russian economy. And because of the sanctions against Russian banks, domestic credit institutions also found themselves outside the negative influence of the American monetary system, Yulia Makarenko specifies.
Butterfly Effect
Due to the long period of raising the key rate by both the US Federal Reserve System and the European Central Bank, there have been consequences on the global market, – says Artem Tuzov, Director of the Corporate Finance Department at IVA Partners Investment Company.
- Banks that hold a significant position in US and European government bonds suffer losses if it becomes necessary to sell such bonds and give deposits to depositors. So far, regulators, both the EU and the US, are coping with the problem. The mechanisms of short-term liquidity are presented. In the US, with the exception of a few banks focused on working with the startup and cryptocurrency industries, banks feel the will to overcome the crisis, the source notes.
According to the analyst, the situation in the EU is worse: Credit Suisse, one of the largest banks in the EU, had problems even before the pandemic. Every year the situation worsens. Perhaps in the end the bank will be bought by another player or nationalized. Nevertheless, while the US financial system does not even think about collapsing, the analyst concludes.
Stopped the problem
The bankruptcy of a number of US banks in early March of this year indicates the accumulated problems in the American banking sector, says Alexander Pushko, Deputy Director of the Institute of Communication Management at the National Research University Higher School of Economics.
- First of all, this is due to the underestimation of risks by the banks themselves, as well as the mistakes of the regulator, which for a long time supported the zero interest rate policy. This ultimately led to the implementation of the “liquidity trap,” the expert adds.
After the news about the problems of Silicon Valley Bank, a panic immediately arose among its clients – in a few days all available money was “taken out” from the bank, the expert described the situation.
It should be noted that more than $170 billion were kept on deposits in the bank. The situation was aggravated by the fact that, according to experts, only 4-5% of the deposit portfolio was insured. Recall that under current US law, the threshold for insured deposits is $250,000. In other words, insurance did not cover more than $160 billion, and they could simply be lost, the expert notes.
According to the interlocutor of Izvestia, the panic of customers could spread to other banks.
In this situation, the Fed and President Biden made statements that all the money of clients will be available to them in full. To stop the liquidity crisis, the Fed has allocated preferential loans to banks in order to stabilize the situation,” the specialist explained.
However, the current crisis in the American banking system seems to have been brought to a halt — it was once again flooded with money.
“But metastases have already spread around the world. The largest European banks suffered, the market share price of which sagged by 5-12% per day, he continues. — On the verge of collapse is balancing the second largest Swiss bank Credit Suisse.
According to Alexander Pushko, this situation is unlikely to affect the Russian banking system in any way – the isolation, diligently built by the unfriendly West, helped.
