![]() Greg Becker, President and CEO at SVB speaks at the 2022 Milken Institute Global Conference in Beverly Hills, California, U.S., May 3, 2022. The problem that creates for banks is simple: higher rates lower the value of their existing bonds. Many financial institutions piled into these investments during a period of historically-low interest rates that spanned the early years of the pandemic, as banks took in tons of new deposits and lending was somewhat restrained.īut now the Fed is hiking rates at a rapid clip, with Fed Chair Jay Powell warning earlier this week the central bank may have to speed up the pace of its rate increases to cool the economy further. Those assets were bonds.īanks are big investors in assets like Treasury bills because they need lots of safe places to park their cash. The Federal Reserve’s aggressive campaign to bring down inflation helped set the stage for major problems at two California lending institutions - SVB Financial ( SIVB) and Silvergate Capital ( SI) - as an outflow of deposits forced both to sell assets at a loss. The problems of two small banks on the West Coast are rippling across markets and causing new investor concerns about some of the country’s largest financial institutions.
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