In the US, the New York Times reported that First Republic Bank was looking to raise cash by selling part of its equity, or shares in the bank. It is normal standard news, in normal standard times. But what we face is subnormal and neo-standard times dictated by war, bank failure/s aftermath of Covid19 times, etc.
For SVB the shock began on Friday last week when Silicon Valley Bank was unable to satisfy its customers’ demands for deposits. An old-fashioned bank run leading to collapse.
New York’s Signature Bank then failed over the weekend. The US federal government, the Federal Reserve and regulators then scrambled to prevent widespread bank runs across the United States. On the back of this Bank debacle if FRB also had a published problem, then a bank runs could become the market sentiment.
Quickly Wall Street banks rushed to inject roughly $US30 billion (A$44 billion) of liquidity or cash into the FRB.
And Bank problems are not isolated to USA, now brewing up in Europe too, Reuters reported several banks were looking to “gross settle” future transactions with Credit Suisse.
It coincided with the price of the bank’s credit default swaps soaring to a record high.
The developments add to fears that the financial community has lost confidence in Switzerland’s second largest bank to make good on its borrowings from other financiers.
It also seems it has become a takeover target, with the Financial Times reporting investment giant UBS is in talks to buy or acquire the bank.
Suddenly, worldwide banking system is facing a crisis of confidence. Do Americans started to lose respect for the US Banking system?
By insuring all depositors, US regulators and the Federal Reserve tried to restore confidence in the financial system but there was pinch of salt in the announcement for wealthy depositors.
Treasury Secretary Janet Yellen told a congressional hearing that US community bank customers with more than $US250,000 in deposits were not necessarily protected.
That announcement can instill fear in the wealthy depositors. Any Fears in one segment of market sentiments could make depositors shift their savings to major US banks — raising doubts over the viability of thousands of US regional banks. USA has a great Bank to no. of Customer serviced ratio. That could be changed quite soon, if the sentiments persist.
US has about $US19 trillion worth of deposits. It is highly impossible to regulate or halt the flow of deposits.
It makes the coming days an uncertain period of time for the international banking sector.
Central Banks’ interest rate hikes might be the catalysts for breaking the banking sector.
But other factors that impacted world financial systems are billions of dollars arms pledges and deliveries to Ukraine, ultra-low interest rates for very long time and Government handouts during Covid19.
The impact of free trade getting hit by sanctions on some countries is still to be measured.
The international financial system needs lot of time to absorb a huge US$190 Billion of COVID-19 Financial Assistance and Debt Service Relief for a list of 90 Countries.
IMF and World Bank restructuring mandates for distressed countries for tax reforms are highly questioned by large Asian financiers like China.
China, Russia, India, Mexico, etc., have started to question the legitimacy of US Dollar as world’s reserve currency.
Considering the US debts running into Trillions, US has to do a lot of explaining in assuring its viability in the long run. But what happens in US Banking sector is just quite opposite. Totally a financial catastrophe is round the corner if US follows the same principles as it followed so far and are satisfied by tinkering with the system rather than a wholesome approach.
New thinking, new quick total changes are needed. May be a new world currency that is not controlled by any country and a financial system that doesn’t work on interest or profit motives may be a good bet, that could come out with a combination of rethink about Corporate sector, whose goal of profit maximisation could be changed to a goal of sustainable peaceful equitable living for all.
‘Sustainable’ is from Environmental determinations, ‘Peaceful’ from not disturbing peace of individuals or countries, ‘equitable’, from not aiming at a goal of profit or wealth or GDP maximisation. The whole financial systems need to understand certain basic things.
Foremost is that needs are limited and wants are unlimited. Either a corporation or Government or Individual that is the major thing to understand. Why? The whole financial system for its survival needs to create more and more wants in the mind of users/consumers so as to create demand and produces more and more to satisfy those artificially created demand/wants. This has created unsustainable ways of growing wealth and profits by creating imbalance in nature – Analysts link unsustainable usage and pollution to environmental issues like earth warming, El Nino effects, floods, earthquakes. The world can show a blind eye to those factors. Are people interested in stress free living (example recent mortgage stresses created by continuous interest rate hikes) or peaceful life without stresses? What is the use of having a palatial house with major portion of one’s earnings go towards service mortgage on the property? Who are all not allowing the peaceful living to happen? Is wealth maximisation goal or superannuation maximation goal two of the culprits?