The Big Banks Fall – Is There A Light At The End Of The Tunnel?

On March 10 2023, Silicon Valley bank (also known as SVB) was seized by the California Department of Financial Protection and Innovation due to after declaring the percentage liabilities of the bank exceeds the maximum amount insured by the Federal Deposit Insurance Corporation (FDIC).

The fall of SVB created a large effect on the Capital venture and High-tech world in multiple ways. Many Chinese companies relied on the bank due to its accessible conditions for opening an investing account (a few days in comparison with several months in other banks, and allowing the usage of Chinese phone numbers for verification).

The bank was also known for being the largest bank for venture debts and the main ban to back beginning young startups and entrepreneurs who wouldn’t get the help they needed to get their business going from any other big bank.

To put things in perspective, according to the U.S. government officials, the fall of Silicon Valley Bank marks the second biggest bank fall in United States history after Lehman Brothers bank failure of 2008.

The 2008 financial crisis caused by the big subprime mortgage crisis created at the time a systematic effect increased by the tight connections between the different banks and investment capital funds, as a sort of chain reaction.

Back then the chain effect influenced the entire economic system, manifesting in recession, inflation, and vast unemployment.

The comparison between the current SVB fall to the crisis of 2008 brings up a severe concern of a similar effect on the world economy.

However, not all fields suffer from the effects of a financial crisis the same way. In fact, research shows that several companies succeeded and performed financially very well during the 2008 crisis and managed to use it to their advantage.

Companies who dealt with chemical manufacturing, tobacco and wine makers, pharmaceuticals companies and some retail stores (such as Wall-Mart) were actually able to increase their revenue during a year of economic difficulty.

The fact that these fields have nothing in common proves two things: first, economic and financial difficulties don’t necessarily mean failure, a smart man might see an opportunity for gross and profit where others see only challenges and barriers.

Second, the financial sector has a limited effect on manufacturing, despite both worlds codependency. The ability to sell a product, a concrete object that can be used by someone and might benefit him, always has value regardless of the financial situation.

A financial crisis is still, nonetheless, a severe event that can affect millions of lives and the economic stability of the entire world.

The United States is the biggest economy in the world and many of the biggest banks in the world rely on the American banking and financial system.

It’s interesting to notice in that regard, that due to the general success of the American financial system it’s considered an distinguished and lucrative position to work at a big American bank.

In fact, the top 3 working places to work for in the financial sector are JPMorgan Chase bank, Bank of America and Citigroup bank, some of the biggest banks in the world, and by far the most influential of them all, which are all offering rewarding banking jobs.

One of the most significant tools used to control and monitor the bank’s activity is the interest rate, dictated by the Federal Reserve (“the Fed”).

By increasing the interest rate the Fed’ creates an additional risk on financial transactions, due to the higher interest debt, causing the banks to limit their investments.

On the other hand, by decreasing the interest rate the Federal Reserve eases the burden on the financial system and usually the number of transactions rises and with it – the economy.

In fact, in the past year the Fed’ actually raised the interest rate in an effort to fight the inflation rate caused by both the Covid-19 crisis and the Ukraine-Russia war.

However, because of the Silicon Valley Bank shutdown the Fed’ was reluctant to increase the interest rate substantially and predictions anticipate even a decrease of the interest rate to help the market recover faster after the blow.

In addition, immediately after the announcement about SVB the Federal Reserve and the American Congress agreed on a rescue package to prevent a large-scale chain reaction.

One way or the other, if the interest rates are indeed decreased it would create an important opportunity, especially in the stock exchange market.

Unlike regular sectors such as agriculture or construction who experience the interest rate effect in the long term, the stock market is affected immediately by it.

Moreover, as mentioned earlier, recession time can also become an opportunity for specific sectors such as grocery selling, the health care sector, and – oddly enough – the financial sector.

Related CTN News:

How To Make A Link Tree For Instagram In 2023?

Unveiling The Truth Behind KWFinder Review: Is It Worth The Hype?

The Vital Role Of Life Insurance In Estate Planning