Translated material
"Helicopters" over Wall Street
In a few days, two banks burst in the USA. This is the largest shock for the country's financial system since 2008
“The US financial system does not threaten anything,” President Biden made such an emergency appeal to the nation after two banks were closed within four days: the California SVB, which provided the loans of the Silicon Valley's startups (his bankruptcy became known last Friday, March 10), and New York Signature Bank (about its closure (about its closure It was announced on Monday, 13th).
And although the SVB Bank (the full name-Silicon Valley Bank Financial Group) is seriously inferior in size to the main giants of Wall Street (16th place in the country in terms of assets-$ 209 billion according to the results of last year), American financial bodies reacted to bankruptcy with maximum seriousness, fearing the effect of dominoes-massive removal Americans of their bank deposits.
All last weekend were devoted to a coordinated brainstorming - a continuous stream of working meetings of federal regulatory authorities. In a joint statement published on Sunday, the Minister of Finance Gzhann Yellen, the chairman of the Board of the Federal Reserve System Jerome Powell and the chairman of the Federal Deposit Martine Insurance Corporation Grunberg announced “decisive actions” to guarantee all deposits, including undigested funds.
The deposits of Americans up to 250 thousand dollars are considered insured by the state, it undertakes to restore them.
The deposits are above this amount is called unhustly.
SVB had about 150 billion dollars of unkempt deposits,
Signature Bank has more than 70 billion.
Financial officials, and on Monday and President Biden, promised the depositors of ruined banks a full return of funds starting on Monday morning, March 13. But only depositors, not bank investors will be protected, the president emphasized. They knew their risks, investing and hoping to make a profit. So capitalism works, Biden added.
The leadership of bankrupt banks falling under external management is dismissed. Money will be returned to depositors at the expense of fees that banks pay to a special deposit insurance fund.
Additionally, $ 25 billion from the Treasury reserve was allocated, but here they expect that this money is not required. The quick actions of the government will allow the small business of America to “breathe a sigh of relief”, he will be able to pay salaries to employees. The main thing is not to panic, then there will be enough funds for everything, this is the central idea of Biden's performance. The American president intends to ask for congress and government regulators to tighten the rules for banks in order to reduce the likelihood of repeating such bankruptcy in the future.
For Bayden, this story is to a certain extent deja vu. He met a global financial crisis in the role of vice president in the team of Barack Obama. Then the threat hung over the largest banks of Wall Street. And it was decided to save those who were “too large to go bankrupt”. The world's financial system was waiting for several years of shocks, journalists and ordinary owners of bank deposits got acquainted with concepts such as hedge funds and derivatives, trying to understand where the giant soap bubble came from, which fell on the world financial system. The then head of the US Federal Reserve Ben Bernanke, the nickname “helicopter” for the willingness to “scatter money” was the nickname - to provide financial assistance to those organizations whose collapse should be prevented at all costs in order to save the economy in general.
Based on the results of that crisis, a law on the reform of Wall Street and consumer protection was adopted. The document in 2300 pages provided for many measures to regulate financial activities and the creation of a council for supervision of financial stability. It was taken by so many restrictive measures that in practice it was quite difficult to figure out what was possible and what could not.
The main message is to prohibit financial organizations with excessively risky operations that threaten personal deposits of ordinary citizens - for example, pension funds.
The most fierce opponents of the Dodd-Frank the law (by the names of the authors-a senator from Connecticut and Congressman from Massachusetts) from the ranks of the Republican Party called the regulation of financial markets with socialism. And one of the main opponents of the regulation of financial markets, President Trump, achieved in 2018 the adoption of the law, which removed part of the restrictions for medium and small banks - with assets from 50 to 250 billion dollars.
And now politicians from two political parties accuse each other of what happened. Republicans believe that support measures declared Biden will fall on a new burden on all taxpayers. Democrats say that it was the removal of regulatory measures by the Trump administration that led to risky operations of current bankrupt banks. Unlike the crisis of 2008-2009, they note in the White House, banks are not going to completely refinance everything, they will return the money only to depositors. So far, only the average in the size of the banks have suffered and are still at risk, regional financial institutions can be said. The giants of Wall Street suffered losses at the end of last week, and then the general damage was minimized. However, the situation is flexible and depends on whether the depositors believe the administration’s assurances.
Simultaneously with the bankruptcy of the two banks, Silvergate voluntary liquidation was announced - another California bank, which worked with a cryptocurrency that collaborated with the Binance US and Coinbase crypto -rhizas.
It is no coincidence that Bernanke remembered the “helicopter”. The Covid-19 pandemic forced the American government to allocate about $ 4 trillion of “helicopter money” as anti-crisis assistance. The SVB bank, which has been about half of the venture enterprises of the Silicon Valley, increased its contributions almost double in the last 12 months. But he miscalculated that the US Federal Reserve (Fed) will continue to keep the rates record low.
Venture capital - money for ideas and future projects that can be resell - these are the so -called long bonds. Due to the pandemic "helicopter" money, inflation in the country has grown to a record level over the past 40 years. Since March 2022, the Fed raised the rate eight times to maintain widespread rise in prices.
Economists predicted that due to the increase in bets, financial organizations with low-profit actions were waiting for default.
Bloomberg, citing anonymous sources in the White House, reported that the government was considering creating a fund to protect deposits in banks that will encounter problems after SVB bankruptcy.
As already noted, the Republicans met with hostility attempts to help bankrupt. Senator from South Carolina Tim Scott, leading a representative of his party in the Banking Committee, called the Bayden administration to the collapse of the California Bank "the greatest form of corporate cumulates." California (with rare exceptions) is the traditional “political patrimony” of the Democratic Party. Like New York, where the Signature Bank headquarters is located. Scott noted that the regulatory authorities seemed to “fall asleep” and did not take timely measures to prevent SVB collapse. The senator expressed concern about the decision of the Biden administration to insure all deposits, including those that exceed the limit of $ 250 thousand, which, in his opinion, will send a negative signal to the market.
Donald Trump Jr. wrote on his social networks on Sunday:
QUOTE
Donald Trump Jr., son of ex-president of the United States:
“I don’t remember the banks collapsed at Trump ... But do not worry, guys, this is only a matter of time until Biden/the media accuse him of this.”
Journalist Aaron Rupa noted that the statement of the son of the former president is Fake: “In fact, from 2017 to 2020 there were 16 banking bankruptcies. The SVB bank has become the first bankrupt since Biden took office. ” According to the Federal Deposits Insurance Corporation (FDIC), eight banks went bankrupt in 2017, four in 2019 and four in 2020. It’s just that none of them was as large as SVB.
On Monday, the CBOE VIX index, known as the “Wall Street fear indicator, jumped 6.25%. According to the rules of the securities and exchanges commission, bidding should be stopped when prices reach the upper or lower limit. Monday morning
FIRST Republic shares fell by 77%,
PacWest - 53%,
Zions - 31%.
The work of exchanges was interrupted several times, starting from the end of last week. Goldman Sachs analysts said they no longer expect that the federal reserve system has increased interest rates this month - "in the light of stress in the banking system." However, it is still expected to increase bets in May, June and July, although now there is “significant uncertainty” in this matter.
The USA is not yet talking about the new banking crisis, noting that the situation compared to 2008-2009 is fundamentally different. What will happen to financial markets tomorrow? The question, of course, is interesting. The federal authorities will hope that their actions will calm the markets and prevent large -scale attempts to withdraw banking funds. One thing can be said with confidence: Biden’s idea in Congress will meet more stringent measures to regulate banking activities by the resistance of the Republicans who control the House of Representatives. And not only them.
“Now is not the time for American taxpayers to save Silicon Valley Bank,” said independent Senator Bernie Sanders. -If you save the bank from Silicon Valley, then 100% due to the finances of Wall Street and other large institutions. We cannot continue to follow the path of "more socialism for rich and harsh individualism for everyone else."