Tech and startup bank SVB abruptly collapsed, and the ripple effect is being felt around the world.
Analysts and financial gurus around the world have offered speculation on the recent crash of SVB – from Trump influenced regulations, to interest rates, and even claims that industry bigwig Peter Thiel withdrew his funds causing the bank to go into freefall, everyone is having their say over what really happened. While a small unknown bank to the global market, the financial institution represented the vast wealth and exponential growth of all Silicon Valley startups, and thus appeared invulnerable. The impact, however, has hit bank stocks, illuminated hidden weaknesses, and set the scene for universal finger pointing.
Worth 212bn USD, the tech lender has triggered a financial crisis some are saying will be worse than the one in 2008, and this is already being felt as rumours are swirling about both Credit Suisse. Trump haters naturally blame him (as they do for everything), while other concerns have been the bank’s risk management policies, increasing interest rates after more than a decade of the super low lending, or even a combination of the three. What later came to light was that investment guru Peter Thiel advised his portfolio companies to remove their money as early as the beginning of March, causing a panic among those in the know and a snowball effect as other clients scrambled to withdraw their funds.
Bernie Sanders claims that the culprit was actually an absurd law from 2018 signed by Congress and signed by Trump, that undid some of the credit requirements imposed by Dodd-Frank banking – specifically brought in after the 2008 banking crisis to alleviate the potential for future issues. The unexpected crash – holding many small businesses’ money and sending them into their own crisis – has impacted investors from India, Mexico, Singapore, and China. During the run of clients attempting to withdraw funds, the share price fell by 60%, triggering panic. The FDIC on March 13th announced they would transfer all SVB’s deposits into a “bridge bank” so that depositors can access their money. Despite this, is it the second-biggest bank failure in US history, which doesn’t indicate good things to come.
“Against the backdrop of a challenging macroeconomic environment, we can expect a continued slowdown in funding activity.” Says Qin En Looi, principal at Saison Capital. Other industry experts have predicted another “credit crunch” after an easy cash era. “There is a sizeable risk that the ongoing banking trouble triggers a ‘sudden stop’ in lending, which would then send the economy into the sort of recession which would go beyond what is strictly needed to tame inflation,” AXA Investment Managers Chief Economist Gilles Moec told Reuters. Global bank stocks are down 15% this month, and companies sensitive to growth outlook, such as real estate and oil and gas, are now slipping on the stock market. This coupled with rising interest rates across the globe.
While this has impacted the rest of the world, and Europe in particular are keeping a close eye on markets, the UAE interest rate has remained unchanged at 4.9% throughout March 2023, and with the property market booking the region continues to be a popular place for foreign investment.
