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Silicon Valley Bank continues to deteriorate, market risk sentiment shrouded

2023-03-13
1007

[A number of Asian companies have deposits in Silicon Valley Bank, Japan's Softbank may be most affected by bankruptcy]

Many Asian companies have disclosed that they have deposits in Silicon Valley Bank, and Japan's SoftBank Group may be the company most affected by the bankruptcy of Silicon Valley Bank. Japan's SoftBank Group, which has made huge investments in technology and has both deposits and loans at Silicon Valley Bank, could be at risk of tight cash flows.

[Silicon Valley bank failure has little impact on the European banking industry]

Silicon Valley Bank's demise does not signal similar problems for European banks, which remain attractive to investors as interest rates rise. European banks have more diversified sources of liquidity, are able to attract and retain deposits, and have stronger financial reserves than US banks. European banks also face less capital risk if they have to incur losses on securities sales. European regulators have urged banks to keep a close eye on assets and liabilities to prevent losses from selling bonds to satisfy depositors. Unlike the U.S., however, central banks in Europe have been slower to tighten monetary policy, so cheap money for banks remains plentiful, and regulation of the banking sector in the region will also help.


[It is too early to speculate on the impact of the thunderstorm on Silicon Valley Bank]

Focus remains on the collapse of Silicon Valley Bank and its impact on the broader US banking system, with the dollar expected to come under pressure. The FDIC issued a statement yesterday confirming that all customers of Silicon Valley Bank and Signature Bank will get their deposits back. In addition, the Federal Reserve reacted immediately: it launched the "Bank Term Funding Program" (BTFP), which will provide additional funds to eligible depository institutions. Of course, it is too early to tell whether these measures will be enough to restore calm to markets tonight, or whether contagion effects will spread through the financial system.

Because the Federal Reserve has established swap agreements with several central banks, the Federal Reserve can guarantee the supply of U.S. dollars through currency swaps with central banks of various countries when necessary. In this case, all forecasts must be cautious, however, there should be no market participants who are now buying dollars for fear of a dollar shortage. The mine explosion will have a negative impact on the dollar. The collapse of the two banks this time was the result of the rapid rise in interest rates and yields, which was caused by the monetary policy of the Federal Reserve. Of course, many people will say differently, and think that the coldness of the bankers is to blame.

[The British Spring Budget has limited impact on the pound]

The UK government's spring budget, released on Wednesday, is unlikely to have a material impact on the pound in the short term, as apart from some one-off measures to ease the cost of living crisis, the budget is not expected to lead to much higher spending measures. Given that most of the changes in the spending plan are broadly neutral, the budget should have limited impact on government borrowing forecasts and therefore on foreign exchange markets in the short term. On the other hand, sound reforms aimed at boosting productivity could provide long-term support for sterling, but given the recent underperformance in this regard, the market may want to see solid evidence before reacting.

[Investors expand their bets that the Bank of England will pause interest rate hikes]

Following the collapse of U.S. Silicon Valley Bank (SVB), investors on Monday placed bigger bets on the chances that the Bank of England would halt interest rate hikes at its March meeting next week. Interest rate futures are pricing in about a 40% chance of no change on March 23, up from 25% earlier on Monday and around 10% last week. Bets on a 25 basis point hike fell to about 60%.

[The U.S. banking industry needs to move closer to Canada]

Silicon Valley Bank's collapse should not have a major negative impact on Canadian banks, and the incident offers an important lesson -- the need for U.S. banks to move closer to Canada. The crisis should be seen as proof that the Canadian banking model is superior. The Canadian banking model is dominated by a handful of large, diversified banks. Whether or not regulators agree with this, the reality is that we will find that to be true as deposits in the US move more from smaller to larger banks.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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