Monday, March 27, 2023

Banking Crisis in the US: Summary of the Week

A lot is happening these days in the US depending on the country. Silicon Valley Bank collapsed due to a bank run and suffered huge losses in its bond portfolio. The FDIC seized control of the bank to ensure orderly liquidation. The US Federal Reserve and Treasury have also announced actions to ease the developing crisis and limit potential contagion. I found relief at first in the market, but the methods turned sour again. Let’s see from XTB a quick update on the site.

What about over the weekend?

The Federal Reserve has announced an aid program for banks that will help them with liquidity and allow them to serve depositors. As part of this program, banks will be able to access bonds as collateral at face value. This requirement will immediately avoid selling bonds that have fallen in value due to aggressive rate hikes if excessive liquidity arises. In addition, the US Treasury Department and the FDIC ensure that all depositors are protected. HSBC’s UK subsidiary SVB has already been sold and media reports suggest other banks are also lining up to do the same in other business branches.

On top of that, regulators shut down another US bank over the weekend: Signature Bank. The reasons behind the move were systemic bank risk. While the actions described in the previous paragraph brought some support after the global markets opened after the weekend, the sentiments after the start of the European session and the US trade opened the previous losses. (FRC.US, -65%) or Western Union (-65%), pushed European indexes and US futures index to trade with strong corrections.

What’s next?

The question of ‘what next’ is somewhat ambiguous. The authors proposed that deposits should be kept and therefore there is a chance that the situation would not spread to the entire economy and trigger a severe recession. On the other hand, it also shows that shareholders are going to pay the price (Bail-In) and pulls the shares of other smaller banks lower, as investors flee from the uncertainty related to them.

We have information from the US authorities about the situation. In H, he will hold an emergency meeting to discuss whether the work is necessary, while US President Biden will speak on the matter at 2:00 am CEST. Meanwhile, markets are in free fall with the Nasdaq-100 (US100) erasing all previous gains and trading 0.5% lower on the day. The index again tests the support zone of 11850 pts which serves as a bottom due to the recent sideways movement. A break below would pave the way for a test of the 61.8% retracement in the 11,600 pt area.

US100 ordered to H4. Source: xStation5

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Nation World News Desk
Nation World News Desk
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