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Financial crisis: harsh report warns of financial instability and sends signal to the Fed

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The collapse of Silicon Valley Bank (SVB) is causing a ripple effect in global markets. In this framework, Oxford Economics analyzed what happened this week and points out the risks that one of the most important economies in the world will suffer.


He Silicon Valley Bank (SVB) collapse is causing a domino effect in global markets, especially affecting the banking sector, although analysts of Oxford Economics consider that the fall of the American bank “will probably have limited effect“, although they warn that” the risk is growing.

They say that the liquidation of Silvergate Capital last week and the collapse of Silicon Valley Bank (SVB) “have raised questions” about the risks of financial instability for the economy, although they hope it will not have “significant broader implications” for the economy and for the global banking sector.

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In this regard, they see specific factors behind the collapse of SVB suggesting that “not necessarily an indication of broader risks to financial stability“, among which they emphasize that “the customer base was dominated by venture capitalists and related startups” and that “it was especially ill-prepared to survive aggressive rate hikes from the Federal Reserve.”

However, they warn of a high level of “uncertainty”despite the joint intervention of the Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC), an action that “should allay fears that might otherwise have sparked additional bank runs.”

At the same time, they consider that the “quick actions” of the regulators will prevent the risks from spreading, although they do not rule out the possibility that other companies are “poorly positioned” in the face of the continuous increases in interest rates by the Fed. .

The aggressive pace of rate hikes is one of the reasons that Oxford analysts give for predicting a contraction in the US economy in the second half of the year, adding that the central bank “it will keep squeezing until it breaks something”.

The banking crisis is interpreted as “the first important sign” of the effects of the Fed’s monetary policy, and forecast that, if this policy is maintained, similar episodes may occur in other companies or sectors.

Source: Ambito

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