The banking system affects us all. That is why the collapse of SVB and Signature Bank is so worrisome. Is the economy in danger? Are some banks more stable than others? Is money safe in US banks?
These are questions that will only be answered as the situation continues to unfold. However, here are five things you should know about the current crisis.
The unintended consequences
The more prominent concern in the aftermath of SVB’s collapse may be the unintended consequences that are unfolding in rate-sensitive sectors. If you are an investor heavily involved in tech, financials, or real estate, your focus on quality is more important than ever. Know how your companies make their money and what their balance sheet risks are. And if you’re getting worried, don’t be afraid to hedge.
Crypto lights up
While the traditional financial world is rocked by turbulence, the crypto market is showing resilience.
In the wake of SVB and Signature’s collapse, one of the largest stablecoins lost its peg, following a warning from Jerome Powell that the Federal Reserve is still prepared to fight inflation with bigger interest rate hikes.
Despite briefly falling below $20K on the bad news, Bitcoin is up more than 11% in the week since SVB’s collapse and Ethereum is up almost 6%.
Cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply.
Putting SVB’s collapse into perspective
While SVB’s collapse is a major event, it is important to put things into perspective. Since 2009, around 500 banks have failed, mainly because of bad loans or funding issues. SVB and Signature’s issues fall into the funding issues category. That is more a sign of changing rates and consumer behaviour and less a reflection of a weak economy.
Deposit withdrawals have hurt smaller banks.
SVB was sunk by a concentrated customer base rattled by the high-rate environment. But many firms are insulated against that.
One trend working against the banking sector, though, has been the industry-wide drop in deposits. Banks operate by taking deposits from customers and lending them back out at a higher rate. When those deposits leave, firms have to make up for lost money.
Smaller banks may be more exposed to this drop in deposits. And like SVB, banks have generally increased the amount of held-to-maturity holdings in their portfolios, a label that does not require them to realise losses they have incurred on their investments.
The most valuable commodity: good information
As this crisis continues to unfold, the most important commodity is good information. On eToro, you can find expert analysis from our in-house analysts. In addition, we have thousands of successful Popular Investors who are sharing their knowledge about the unfolding bank crisis with our community. Their ideas and insights may be of benefit as you look to navigate your portfolio. Moreover, as you read their insights, you can see exactly how that plays out in their portfolio. When you join eToro for free, you can unlock this world of knowledge instantly.