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The recent fall of SVB and other banking entities has generated significant alarms in the international banking system. In particular, the focus has been on Credit Suisse, which has required liquidity support from the Swiss Central Bank, following the lead of the Federal Reserve. This situation has attracted the attention of financial experts and has raised concerns in the international community about the stability of the banking system and the need for preventive measures.
Madrid, March 17, 2023.- The United States Treasury is experiencing a decline in its one- and two-year bond rates due to excess demand, as investors seek refuge in safe havens. "In the coming weeks, three important issues should be watched: the growing pressure from savers and investors to withdraw deposits from regional and small banks, the questionable intervention of central banks to bail out institutions that might otherwise go bankrupt bankruptcy and a possible reconsideration by the Federal Reserve regarding its policies of aggressively increasing interest rates," suggests expert Bernardo Dominguez Cereceres. These issues have captured the attention of the financial community and will be closely watched in the coming days.
The Great Recession of 2008 was a major wake-up call for banks and regulators of the financial system, which led to the implementation of stricter regulations and higher capital requirements to protect banks from risk situations. However, "financial risk continues to be high when economic cycles change," says financial expert Bernardo Domínguez Cereceres.
In the last few weeks and hours, a logical sequence of events surrounding the fall of SVB has been observed. Economic activity has slowed due to the recession, and costs have risen due to inflation. The bank's clients, mostly technology companies, have begun withdrawing money from their accounts to cover working capital needs and have moved their treasuries to institutions that offer good interest rates for short-term funds. "This situation has generated a demand for liquidity in the banks, which have gone to the market to obtain funds through bond placements and operations. These events have generated concern in the financial community and will be closely monitored in the coming days," according to Bernardo Dominguez Cereceres.
"The rise in interest rates and the reduction in banks' capital coverage have generated a worrying situation in the financial system," explains financial expert Bernardo Domínguez Cereceres. The recent fall of SVB and other regional banks has set off alarm bells in the market, prompting a stampede of deposit withdrawals by frightened customers. This situation has generated a cascade effect, causing a significant withdrawal of deposits in other banks at risk.
Given this situation, regulatory authorities must act quickly to guarantee the availability of savers' money and offer emerging lines of liquidity to troubled banks. In addition, to calm the markets, attempts are being made to ensure the liquidity of the system and attempts are being made to sell failed banks to large banks that can absorb and manage the transition. All this is done with the aim of initiating a control and containment mechanism that allows evaluating risks in other banks and resolving forcing mergers and capitalization. It is vital for the financial stability of the system that immediate and effective measures are taken to prevent a possible debacle in the financial system.
"The magnitude of the problems that the looming recession in the United States and the rise in interest rates implemented by the Federal Reserve can generate must be recognized," said Bernardo Domínguez Cereceres, an expert on the matter. In this context, banks and financial regulators: "must be prepared to act quickly and effectively in situations of financial risk", as the expert points out.
Amid the widespread backlash after the fall of SVB bank, some critics are seeking to theorize the reasons for its failure, however, it is important to highlight the relevant role that the bank played in supporting numerous start-ups in the technology industry, that today are leaders in the market. In fact, SVB was the only bank that opened its doors to these companies in its early days, when its financial situation was precarious. For this reason, "it is inappropriate to make firewood from the fallen tree and minimize its contribution", explains the expert Bernardo Domínguez Cereceres.
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