Silicon Valley Bank collapse may calm interest rate rises
The collapse of Silicon Valley Bank could fuel pressure on central banks to ease up on interest-rate hikes, according to some finance experts.
Alice Haine, a personal finance analyst at Bestinvest, said: “The collapse of two US banks in recent days, Silicon Valley Bank and Signature Bank, is a reminder of the risks that come when
central banks, like the US Federal Reserve, raise interest rates aggressively. The issue at the heart of SVB’s failure is massive losses on its bond investments in the face of rising US interest rates, and a fire sale of these as its clients – typically technology start-up entrepreneurs – began pulling money out.”
Ms Haine said the authorities had acted swiftly, and that HSBC’s £1 deal to take over the UK arm of the failed Silicon Valley Bank (SVB UK) would hopefully help to restore confidence. She continued: “After well over a decade of ultra-low interest rates, there was always going to be some fallout from a 180-degree pivot to a new era of rapidly rising rates.”
Ms Haine said the recent action “should help calm the shortterm market jitters and may actually provide a boost to the stock market” because it arguably reduces the likelihood of a return to interest rates rising more aggressively. Jerome Powell, head of the US Federal Reserve, previously hinted that the Fed might raise interest rates further and faster than thought. The next Bank of England base rate decision, meanwhile, is on 23 March.
Alice Guy, head of pensions and savings at Interactive Investor, said: “The failure of Silicon Valley Bank is worrying for pension investors and will bring back bad memories of the 2008 financial crisis. But thankfully, the failure of SVB is an isolated incident and is unlikely to have a major impact on investors. The UK and US governments have stepped in quickly to shore up the bank and make sure the small businesses can access their money this week.
“Although the failure has sparked a slump in UK bank stocks, this is due to general nervousness throughout the market rather than a specific danger to UK banks, and bank share prices are likely to bounce back. The rules and regulations for banks were hugely tightened after the financial crisis to protect consumers and keep deposits safe.”
Ms Guy added that the events will “add to the pressure on UK and US central banks to ease up on raising interest rates when they meet next week to make a decision”.
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