The investment losses that contributed to the collapse of “Silicon Valley Bank” (SVB) are more or less the problem of the entire US financial system, writes “Bloomberg”.
Content will continue after the ad
Advertising
Overall, the industry ended last year with $620 billion in unrealized losses (meaning assets have fallen in price but haven’t been sold yet, so the losses are more theoretical at this point) from investments in low-yield bonds.
According to experts, this problem is controllable for most banks.
Taken as a whole, bond investments make up less than a quarter of the banking system’s $23.6 trillion in assets. However, unlike SVB, others tend to have a wide range of depositors from different areas, who are unlikely to all need to withdraw at the same time.
The risks are even lower for the biggest banks, and the perception is that these credit institutions are too big to fail.
For most banks, unrealized losses are a manageable problem. But investors and savers remain nervous about lenders sitting on a huge pile of bond investments that are losing value.
It can also be observed that due to low deposit rates, savers are gradually withdrawing their money from deposits in banks and investing it in money market funds and other investments, thus banks are facing a certain amount of money outflow. They are forced to pay more for deposits, while earnings are constrained by investments in low-yielding bonds during the pandemic. This, in turn, could limit lenders’ ability to lend to consumers and businesses, slowing the economy.
“Banks pay more for deposits, but income from bonds is fixed,” emphasizes Stan August, a former bond analyst at Bank of America. “That’s where the tight spot comes in.”
