Al-anwar Newspaper English news in Australia
The disastrous collapse of a major bank in the United States is having unexpected consequences in Australia.
Silicon Valley Bank (SVB) went bust on Friday. It was the second biggest bank failure in recent US history and there are fears of “contagion” spreading across the globe. But there’s a surprise upside for mortgagors with financial markets now betting strongly that the Reserve Bank of Australia (RBA) will put interest rates rises on hold. Australian government bonds have rallied after US regulators reassured markets that they would protect customer deposits.
Three-year yields are now on track for their biggest decline since October and ten-year yields have also fallen underneath the RBA’s cash rate.
Money markets are also signalling that investors believe the RBA will put a hold on further interest rates rises, with the probability of a pause now at 74 per cent. SVB goes bust
SVB had a market capitalisation of around $40 billion, making it only around a fifth smaller than Australia’s ANZ Bank, and it had total assets of more than $300 billion.
Yet, it closed its doors on Friday after the California state government and US federal government stepped in after fears its woes could spread to the rest of the banking sector. US Treasury Secretary Janet Yellen confirmed on Sunday the US government would not bail out the bank.
Betashares chief economist David Bassanese said unlike in Australia, failures among the thousands of small US banks were not uncommon. But SVB was the 16th largest in America and it marked the biggest bank failure since the global financial crisis of 2008. “At heart, SVB exploited a regulatory concession to smaller banks that did not require it to set aside capital for any “mark-to-market” paper losses … Perhaps given this concession, it also did not feel the need to hedge against the risk of these paper losses in the first place,’ he said.
“So, when an initial fall in deposits – due to growing financial problems among its major tech industry depositors – forced it to sell some assets and realise some losses, other largely uninsured depositors also in the tech industry got spooked and a classic bank run followed.”
But Mr Bassanese said “it’s hard to believe there’s not a few more SVBs out there somewhere”. “Regulators may offer some relief in the form of financing to any uninsured depositors needing more money more quickly. Accordingly, this seems more like a liquidity issue than a solvency one for most in the local or US tech industry, so a major implosion seems unlikely,” he said.
