ECONOMYNEXT – US regulators have shut Silicon Valley Bank amid mark-to-market losses amid rate hikes to end the inflationism of Fed Chief Jerome Powell shortly after Sivergate Bank, said it was closing, sending shockwaves rippling through financial markets.
“Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver,” the agency said.
“As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined.”
SVB’s closure comes shortly after Silvergate Bank, a firm that had heavy exposure cryptocurrency activities decided to shut itself down, triggering fears of another financial crisis.
According to reports SVB also had links to cryptocurrencies. Crypto ‘assets’ have soared in recent years as Fed Chief Jerome Powell printed money, using an inflation index, a 1.5 year lagging indicator, to delay rate hikes, while blaming supply chains for price rises.
Bond values are also falling as US interest rates rise. Silicon Valley Bank and others are also exposed to US long bonds bought with short term money.
The US had unusually low rates as Powell printed money to ‘create employment’ triggering stock crypto and commodity bubbles as well as supply chain shocks.
When central banks provide bad money, mal-investments are triggered which then lead to banking crises as interest rates normalize.
US authorities have blamed Russia’s Putin for high food and fuel prices not Powell.
Sri Lanka’s banks which had bought government bonds at low rates, were also hit with mark-to-market losses after two years of money printing triggered an external default and high corrective rates.
Economists had warned that Powell was ignoring developments in US money supply, claiming there was no longer a link between money supply and inflation.
The US M2 broad money started to slow down dramatically in 2022 and commodity prices started to ease but Powell continued to raise rate and also withdraw excess liquidity from the banking system, based on the lagging price index.
Economynext reported unusual behavior in the US M2 money supply as far back as September 2022.
Related US Federal Reserve hikes rates, to take out US$95bn a month to tame Powell bubble
Sri Lanka also printed money under so-called ‘flexible inflation targeting’ and triggered currency crises long before, money printing showed up in the consumer price index.
As interest rates rose sharply – as they usually do after policy rates are held down on various excuses – banks were hit by mark-to-market losses on domestic bonds bought a low prices.
Due to the lack of a cut off date, bond yields have soared amid fears of IMF Debt Sustainability Analysis driven domestic debt default (DSA-DDR).
(Colombo/Mar10/2023)