The "three knowns" and the "four unknowns" of the collapse of three U.S. banks in seven days

　　Chinanews.com, March 15th (Chinanews Finance and Economics Peng Jingru Gong Hongyu) Within a week, three American banks closed down one after another!

　　Just two days after the collapse of Silicon Valley Bank, the American Signature Bank in New York State was also closed by regulators, after another cryptocurrency bank, Silvergate Capital, announced that it would cease operations as early as March 8.

　　What happened to the US banking industry?

Will the financial crisis happen again?

Video: Silicon Valley Bank reopens depositors to line up to withdraw money

A known

- Closing time

　　On the 8th, the "Wall Street Journal" reported that the cryptocurrency bank Silvergate Capital announced that it would cease operations and voluntarily liquidate its subsidiary Silvergate Bank, which provides services to the cryptocurrency industry.

　　On the 10th, the Silicon Valley Bank of the United States was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation was designated as the receiver.

　　On the 12th, the U.S. Treasury Department, the U.S. Federal Reserve Board, and the U.S. Federal Deposit Insurance Corporation (FDIC) issued a joint statement announcing that the New York City-based Signature Bank had been shut down by local regulators on the grounds that it had systemic risks.

——Closing process

　　The immediate cause of the collapse of the three banks was a bank run.

　　On March 9, depositors of Silicon Valley Bank concentrated their withdrawals of US$42 billion. In order to pay principal and interest, Silicon Valley Bank sold off its floating-loss bonds.

Stocks fell by the limit on the 10th.

　　Signatory banks also suffered a multi-billion dollar bank run on March 10.

It has been looking for a buyer or other solutions to shore up its financial situation, but failed to complete the asset sale in time and eventually went bankrupt.

　　Before its collapse on March 8, Silvergate also faced a race by bank depositors to withdraw more than $8 billion in deposits.

——Closed background

　　The collapse of all three banks is related to the general environment of the Federal Reserve raising interest rates.

　　Starting in 2021, the United States has entered a cycle of interest rate hikes, causing financial institutions holding various dollar-denominated bonds such as U.S. Treasury bonds, government-backed agency bonds, and MBS to suffer a large number of floating losses, including Silicon Valley Bank.

As Silicon Valley Bank sold bonds to pay back principal and interest, the bank's profits and capital were eroded dramatically, ultimately triggering a collapse in confidence.

　　For the two cryptocurrency banks, Silvergate and Signature Bank, under multiple pressures such as interest rate hikes, supervision, and liquidation, cryptocurrencies have shown a collective downward trend. The amount of bank deposits has dropped significantly, and their loan-to-deposit ratio and capital adequacy ratio are low. level of bank security.

Federal Reserve Chairman Powell.

Photo by China News Agency reporter Sha Hanting

should know

——Why only rescue depositors, not banks?

　　Regarding the bank failure incident, the US government has confirmed that it will intervene, but its attitude is very clear: it only protects the money of bank customers, not investors.

　　U.S. President Joe Biden said that the U.S. banking system is safe and the public can rest assured.

because "investment inherently has risks, and when risks occur, investors lose money, and that's how capitalism works ".

　　In this regard, He Ping, deputy dean of the School of Economics and Management of Tsinghua University and head of the Department of Finance, told Zhongxin Finance and Economics that this is the traditional practice of US regulators.

Regulators believe that financial institutions cannot be "too big to fail", as this would contribute to the moral hazard of financial institutions.

——Where does the Federal Reserve's "pocket" bank depositors get their money?

　　On March 12, the U.S. Department of the Treasury, the Federal Reserve, and the FDIC issued a joint statement stating that starting from March 13, depositors can withdraw all their funds.

The statement mentioned that this move will not cause losses to US taxpayers.

　　Yang Delong, chief economist of Qianhai Open Source Fund, said that the statements made by relevant U.S. authorities are actually misleading. This time, they said that no taxpayers’ money was used, which may mean that they would not directly use the taxes paid by taxpayers and not use financial appropriations, but For example, to solve it by issuing national debt, in fact, it is also using taxpayers' money, but it will be more concealed.

　　"There is no free lunch in the world." Yang Delong said that since the U.S. dollar is the world's hard currency, the United States has the advantage of printing money, but if the Federal Reserve prints money without restraint, it will have direct consequences for national organizations and individuals holding U.S. debt. Loss.

——What are the similarities and differences with the "Lehman Brothers" bankruptcy?

One of the commonalities between Lehman Brothers and Silicon Valley Bank is that they both hold a certain proportion of "problem assets".

　　He Ping said that before the collapse of Lehman Brothers, they held a large amount of "toxic" asset-backed securities, while Silicon Valley Bank held a large amount of bonds that had already lost money.

　　"The balance sheets of banks are not so transparent, so this crisis is very similar to the subprime mortgage crisis. People don't know which banks are safe and which are not. At present, banks must have a lot of assets because of the rapid interest rates. Rise and rapid depreciation, but everyone is not clear about this. The negative impact of this 'information asymmetry' on assets exists objectively, and once potential 'problems' are discovered, there will be a crisis of confidence in the entire market." He Ping said.

　　In addition, Yang Delong mentioned that whether it is the bankruptcy of Silicon Valley Bank or the bankruptcy of Lehman Brothers, it is actually because of the failure of risk control, and there has been a liquidity crisis and a credit crisis.

　　Zhou Junzhi, chief macro analyst of Minsheng Securities, told the media that

.

　　First, during the "Lehman crisis", the credit of the underlying assets of the securities held by banks fell sharply, and the securities were widely used as collateral for mortgage loans.

In the Silicon Valley Bank incident, there was no problem with the credit of U.S. debt and MBS, but only the fluctuation of market value caused by the normal interest rate rise.

At the same time, the main source of SVB's liabilities is bank deposits, and there has not been a large amount of mortgage loans.

　　Second, the US government did not bail out Lehman Brothers, and Silicon Valley Bank has been taken over by the FDIC.

The move could slow the run on Silicon Valley Bank somewhat, buying time for its liquidity to turn around.

In contrast, during the subprime mortgage crisis, the government did not launch a formal rescue. After the acquisition plans of Bank of America and Barclays failed, Lehman Brothers declared bankruptcy.

　　Third, the contagion of Silicon Valley Bank's liquidity problems is limited.

The reason why the subprime mortgage crisis spread widely was that the credit of “safe asset” MBS had problems, and MBS was widely used as collateral for repurchase transactions in the money market.

Secondly, after Lehman Brothers had a problem with its repayment, the bank certificates of deposit issued by it also defaulted.

Due to the large scale of Lehman Brothers, its bank certificates of deposit were held by many investment institutions, which contributed to the financial crisis.

　　"As for Silicon Valley Bank, its borrowing in the financial market is relatively low. Of its $13.6 billion in short-term borrowing, $13 billion is from FHLB, and its mortgage repo in the money market is only $525 million Among Silicon Valley Bank’s US$5.37 billion in long-term loans, about US$3.37 billion is long-term bonds. That is to say, the market-oriented exposure of Silicon Valley Bank’s liability side is about US$4 billion, which is relatively low. Zhou Junzhi pointed out.

On March 13, local time, customers waited in line in front of the headquarters of Silicon Valley Bank in Santa Clara, California, to handle business.

Photo by Liu Guanguan

unknown

—

　　International Monetary Fund analyst Zhao Yueshu said that for bonds and government-guaranteed MBS, although their market price is lower than the face value, they can be redeemed at the face value when they mature.

Therefore, the government uses par guarantees to ensure that all depositors have access to funds.

These emergency measures curbed people's panic to a certain extent, but still caused a great crisis of confidence in small and medium-sized banks in the United States.

　　He Ping believes that the US government's approach has not solved the actual problem facing the US banking system, that is, the imbalance between assets and liabilities.

Therefore, the crisis of confidence in the market may still be difficult to resolve.

　　He also mentioned that although the traditional practice in the United States is not to bail out financial institutions themselves, considering the collapse of Silicon Valley Bank and the Fed’s interest rate hike, the government’s current bailout measures are not in place, and bailout of Silicon Valley Bank should be considered.

—

　　The market generally believes that with the collapse of Silicon Valley Bank, the Fed's sharp rate hike will come to an end, and the probability of the Fed raising interest rates by 50 basis points at the March interest rate meeting has been greatly reduced.

　　However, there is still disagreement about the extent of future interest rate hikes and whether they will stop raising interest rates completely.

　　He Ping believes that until this wave of confidence crisis subsides, the Fed will no longer be able to raise interest rates, otherwise it will bring risks to more banks.

　　In Zhao Yueshu's view, next week's Fed meeting is not expected to raise interest rates.

This decision is mainly based on the consideration of market confidence to avoid excessive market volatility.

However, given the continued rise in inflation, especially core inflation, she believes the Fed will continue to raise interest rates this year.

This is also an important measure that the Fed must take to control inflation.

——Will

　　As the second largest bank to fail in U.S. history, whether the collapse of Silicon Valley Bank will trigger a financial crisis is one of the hottest topics at the moment.

　　He Ping said that at present, the self-rescue ability of small and medium-sized banks facing a crisis of trust is poor. If bank runs continue to occur, small and medium-sized banks will sell assets one after another, which will lead to a further decline in the asset valuation of the entire market.

At this time, if the big banks also encounter liquidity problems, selling assets will also lead to increased losses.

Then, it is easy to have a situation similar to the financial crisis.

　　Zhang Ming, deputy director of the Institute of Finance and Economics of the Chinese Academy of Social Sciences and deputy director of the National Finance and Development Laboratory, believes that the Silicon Valley Bank incident has had a certain negative impact on the US venture capital system and technology start-ups. Chinese technology-based companies have had a certain impact, but judging from the new solutions of the US government, the subsequent direct impact is relatively limited.

——Will

　　How much impact the US banking crisis will have on the world is yet to be determined, but many governments have expressed close attention.

　　Affected by the collapse of Silicon Valley Bank in the United States, the German Financial Supervisory Authority decided to close the German branch of Silicon Valley Bank on the 13th, believing that the bank "has risks in fulfilling its obligations to creditors."

　　South Korea's Ministry of Finance and the Bank of Korea said on the same day that they were closely monitoring financial markets amid heightened uncertainty following the collapse of Silicon Valley Bank in the United States.

　　The British Treasury said in a statement on the 12th that the British government is studying financing solutions to help Silicon Valley Bank's hundreds of customers in the UK fulfill their cash flow obligations.

　　In this regard, Zhao Yueshu said that at present, the risk of European banks is relatively small, because they have a relatively low proportion of government bonds allocated and have taken measures to avoid duration risks.

　　In terms of impact on China, Zhang Ming analyzed that, from the current point of view, the impact of the Silicon Valley Bank incident on China's financial market is very limited.

(over)

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