Bank failures: On Wall Street, the crisis persisted despite the multiplication of bailouts
A week after the bankruptcy of Silicon Valley, a California start-up bank hit by soaring interest rates, Wall Street was still in crisis on Friday, March 17th. This is not the time for the great financial disaster of 2008, but bailouts are multiplying without the Fed, US Federal Reserve, Treasury, and Wall Street banks being able to put out the fire definitively. On Thursday evening, First Republic Bank, a California institution specializing in wealth management, took over $30 billion (€27.9 billion) in new money But it wasn’t enough: It fell by a third on Friday and is now worth $22, down from more than $122 at the start of March. Selling it over the weekend is possible.
The case affected regional banks (their index lost 6% on Friday and 30% since the beginning of March), but also Wall Street giants such as JPMorgan (-3.8%) or Goldman Sachs (-3.7%). The S&P 500 has erased almost all of its gains since the start of the year. BlackRock founder Larry Fink, the first asset manager, has raised the specter of a ‘Slow Crisis’, ‘With More Shifts and Lockdown Coming’ in regional banks.
Explanations of the crisis several drawers. The financial world is paying the price for the Fed’s free monetary policy, chaired by Jerome Powell, and its Covid-19 budget stimulus plans: cash flowed into banks, who put it into Treasury bonds. With inflation re-emerging, the Fed was forced to raise interest rates from zero to more than 4.5% in one year. And when interest rates rise, bond values drop until they adjust to the new market yield, losing an average of 15% of their value in 2022. As a result, US banks experienced latent losses in their portfolios. An estimated $620 billion at the end of 2022. That is “The price we pay for decades of easy money,” Larry Fink wrote to his investors.
Violation of precautionary management rules
The second reason, negligence of management. Violating all the rules of prudent management, Silicon Valley Bank placed its clients’ money in long-term bonds, and thus did not have the necessary liquidity in case of withdrawals. This is what happened when startups began to consume their capital in times of crisis and withdrew their money in a panic when the difficulties of the bank became known. I am deeply committed to holding those responsible for this mess to account. no one is above the lawPresident Joe Biden said on Friday, calling on Congress to “to represent” so that, in case of mismanagement, “It makes it easier for regulators to recover executive compensation, to impose civil penalties and [leur] prohibited from working in the banking sector..
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