A Silicon Valley bank collapse could put more pressure on central banks to mitigate interest rate hikes, according to some finance experts.
The collapse in recent days of two US banks, Silicon Valley Bank and Signature Bank, is a reminder of the risks that come when central banks, such as the US Federal Reserve, raise rates, said Alice Hein, personal finance analyst at Bestinvest. rates aggressively.
“The problem at the heart of SVB’s failure is the massive losses on its bond investments in the face of rising US interest rates, and its fiery selling as its clients — typically tech start-ups — begin to withdraw money.”
Ms Hain said the authorities acted quickly and hopefully the £1 deal for HSBC to take over the UK arm of the failed Silicon Valley Bank (SVB UK) will help restore confidence.
She continued, “After more than a decade of ultra-low interest rates, there has always been some fallout from the 180-degree pivot into a new era of rapidly rising rates.”
Ms Hein said the latest measure “should help calm short-term market tensions and may actually provide a boost to the stock market” because it arguably reduces the likelihood of a return to higher interest rates with greater force.
Jerome Powell, Chairman of the US Federal Reserve, earlier hinted that the Fed may raise interest rates more often and faster than thought. Meanwhile, the next key interest rate decision from the Bank of England, will be on March 23.
“The failure of Silicon Valley Bank is worrying for pension investors and will bring back bad memories of the 2008 financial crisis,” said Alice Jay, head of pensions and savings at Interactive Investor. “But fortunately, the SVB failure is an isolated incident and is unlikely to have a significant impact on investors. .
The UK and US governments quickly stepped in to support the bank and ensure small businesses had access to their money this week.
“Although the failure has caused a slump in UK bank stocks, this is due to general nervousness across the market rather than a specific risk to UK banks, and bank stock prices are likely to rebound again.
“Rules and regulations for banks have been significantly tightened after the financial crisis to protect consumers and keep deposits safe.”
Ms Jay added that the events would “add to pressure on central banks in the UK and US to moderate a rate hike when they meet next week to make a decision”.
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