New Cracks Show Up In The Global Financial System
New cracks in the global financial systems are showing up across North America and Europe. Since January 2023, several banks have shown extreme financial difficulties starting with Credit Suisse, which was just acquired on March 18th by the other Swiss rival UBS for about US$ 3.6 billion. Credit Suisse had previously refused financial aid from the Saudi royal family, which owns 39% of Credit Suisse through their national Sovereign Wealth Fund PIF. Also, and more concernedly, Silicon Valley Bank (SVB) and Signature Bank have shut down operations in 2023 and have been rescued by the US regulators.
When does a bank fail?
When a bank can’t manage its obligations, a federal or state agency will shut it down. The Federal Deposit Insurance Corporation, or FDIC, will become the owner of the failed bank. The FDIC will make sure that depositors get their insured deposits and have access to their funds. Silicon Valley Bank invested a large portion of its funds in Treasury and mortgage bonds, and the bank’s portfolio lost billions of dollars when interest rates rose. As a reminder, the interest rate was raised 7 times in 2022. Once liquidity concerns became apparent at the beginning of March, too many people tried to withdraw their money at the same time, and the bank became insolvent — its liabilities exceeded its assets. As a result, the…
