So, SVB’s collapse has got everyone talking, right? But you’re probably wondering why we should even care. Well, understanding the banking crisis can help savvy investors like us spot similar issues in other financial institutions and protect our investments better.
Now, why does SVB’s failure affect us as investors, and what opportunities could come out of it?
Let me break it down for you.
What went wrong?
SVB was a major tech-focused bank in the United States, lending to tech companies. But they also lent money to riskier borrowers – think startups, venture capitalists, and cryptocurrency companies. When the economy slowed down, some of these borrowers started struggling, and SVB found itself facing two big problems:
- Low Capital: Not enough money to cover loans if they went bad.
- Low Liquidity: Not enough cash to pay back depositors if they wanted their money back.
So, people lost trust in SVB and started pulling their money out. And we all know what happens when there’s a bank run. SVB tried to raise more money and borrow cash from other banks, but it just didn’t work out. Eventually, it collapsed.
What happened next in the banking crisis?
The US government stepped in, and the FDIC took over SVB, protecting depositors’ money up to $250,000 per account. And by now First Citizen has taken over SVB Bank. This failure reminds us of the 2008 global financial crisis, and people are now worried about which bank might fail next.
Will this be the start of the global financial crisis?
The big question is: could this trigger another global financial crisis?
If you ask me, I think the central banks did see this coming when they were tightening the policy for the past couple of years.
It is always said that:
“it’s only when the tide goes out that you learn who has been swimming naked.”
It is a natural consequence that financial institutions and companies who take excessive risks for “greed” will likely fall once the liquidity is tightened.
Now, the burden is on the central banks to balance the systematic banking risks and inflation. All eyes are on the rate hike decisions and monetary tightening cycle. If you are not familiar, I have discussed this topic in depths in the following articles:
- Inflation and Recession: How to Invest When the Market Has You on the Ropes
- What if Interest Rate Hikes Are Good for Stocks?
I think that there is a high chance that the Fed might pause its monetary tightening policy to reassess the impact on the whole economy. And, for those who can handle the volatility, such market dislocations could present value opportunities.
If we do see an end to the interest rate hiking cycle, what could be the impact on technology stocks, gold and even cryptocurrencies?
SVB’s collapse has sent shockwaves throughout the tech industry and global markets. Although the situation is different from 2008, we can’t ignore the fact that we’re dealing with Covid, the Russia-Ukraine war, and US-China tensions. Volatility is high, but there could still be profit-yielding investment opportunities.
Recently I organized a Webinar for my subscribers to discuss in depth these pressing questions:
- What really causes the collapse of SVB Bank and Credit Suisse?
- How will this affect the direction of the stocks, bonds and other asset classes?
- How does it lead to a Fedilemma and affect the interest rate cycle?
- Will this event lead to a stock market crash or another global financial crisis?
- What are the ways to safeguard your investments through this banking crisis?
Recently I organized a Webinar for my subscribers to discuss this in detail. The webinar is over. If you are interested in the topic, leave your email below and I will notify you of the next one.
Remember, knowledge is power, and it’s the best way to protect your investments during economic turmoil.