The fire in the US financial market has spread to Europe. In the near future, another 50 US and European banks could fail. Many private investors fear a domino effect that will lead to the collapse of other credit institutions and cause a major global crisis. What tools will help Russians save their savings during the impending storm, The Eastern Herald figured out.
The failure of the American Silicon Valley Bank (SVB), Silvergate Bank and Signature Bank has caused panic in the financial markets. The bankruptcy of SVB, which was a shareholder of the American Federal Reserve, was particularly painful. It is understandable that the Fed, under a plausible pretext, quickly found a savior in the person of First Citizens Bank. It was only a matter of time before problems emerged with failing banks, believes Timur Nigmatullin, investment consultant at FG Finam: “A bank took short deposits and invested them in long-term loans ( government bonds). The second focused on cryptocurrencies, which form a continuous pyramid.
An interesting point: the three “drowned” banks were actively working with crypto assets. This circumstance gave rise to the version that the American regulator organized a demonstrative flogging for supporting crypto projects that threaten the hegemony of the dollar. In fact, it is not.
According to Sovcombank chief analyst Mikhail Vasiliev, the main cause of the problems in the financial structures of the United States (and not only the United States) is the cycle of Fed monetary policy tightening the fastest in 40 years. Over the past year, in order to fight against record inflation, the Fed has raised its key dollar rate sharply from 0.25% to 5%! But the Fed’s new course had a side effect on the US debt market – government bond yields there fell. As a result, when depositors ran for cash, banks were forced to sell securities at a loss to replenish liquidity.
Of course, the “diseases” of affected banks focused on financial digital assets have worsened after the collapse of crypto exchanges and crypto companies. “The problems in the crypto industry are also due to the rapid tightening of financial conditions, as many business models are designed to operate at near-zero rates and with cheap credit,” Vasiliev added.
The turmoil in the US banking sector is not over yet, according to Moody’s. In late March, in just one week, Americans withdrew nearly $100 billion from deposits, CNBC reports. The main volume fell on the smaller banks. According to CNN, the volume of unrealized non-profitable assets in the US banking system is $620 billion. “Most American banks are on the verge of insolvency, and hundreds are already completely bankrupt,” predicted renowned economist Nouriel Roubini, who predicted the global crisis. crisis of 2008, that’s for sure. “US Fed Chairman Jerome Powell is either lying about the health of regional banks in the US or not knowing what he is doing amid the regulator’s monetary policy tightening,” Lawrence said. McDonald, former vice president of Lehman Brothers Corporation. According to him, the Fed “is like smoking in a shed with dynamite”.
A number of analysts believe that the West is not facing a banking crisis but a structural crisis. And how to save the financial system from the growing tsunami is still unclear. Nonetheless, politicians and regulators in the US and EU are clearly optimistic.
Although there is nothing to cheer about. The storm that started in the United States has already spread to Europe. Within days, the famous Swiss bank Credit Suisse fell into a tailspin. Last week, the ratings of the biggest banks in the EU collapsed. Storm clouds have gathered over the largest credit institutions in Germany (Deutsche Bank, Commerzbank) and Italy (Monte dei Paschi di Siena). Deutsche Bank is known to be the largest bondholder in Italy and Spain. If suddenly, to solve their financial problems, the bank decides to sell all these securities, then the default risk will already face these States. Moreover, despite the anti-crisis measures, inflation in most EU countries will not go down.
“The way to ‘beat’ inflation has been known for a long time – you have to raise interest rates radically, as Fed chief Paul Volcker did in 1981,” said Sergey Khestanov, an adviser in macroeconomics from the CEO of Otkritie Investments. Yes, there will be a recession, soaring unemployment, a cloud of dissatisfaction, but when the dust settles, inflation will fall. Our Central Bank did the same in 2015, 2020, 2022. But it’s a very bitter medicine. And it takes courage to take such an unpopular step.
According to Khestanov, the current Western banking crisis does not directly threaten the Russian Federation: “Now, direct ties with Russian financial institutions in developed countries have been significantly reduced. But there is another problem – a recession in the world economy will lead to lower commodity prices. Let me remind you that at the end of last year, our budget was more than 40% dependent on oil and gas revenues.
In addition to the source of filling the state budget, many citizens are also interested in the question – how to save money in the face of a new global threat? “It is prudent to keep the amount of money intended for use during the year in rubles. For ordinary citizens, deposits are suitable, for advanced investors – ordinary OFZs, where profitability and liquidity are often higher, ”advises Khestanov. If the task is to hold the savings for a period of more than a year, then, according to the analyst, it is better to focus on the currency: “But there are risks here. In my opinion, the end of Western sanctions against the Russian Federation is still a long way off. And if something bad happens, it is possible that foreign currency deposits will be issued to depositors in rubles at the state rate. If it’s close to the exchange, then it’s fine. What if it was different?
For now, the Russians should take a closer look at the yuan, which carries less political risk. “We are not yet used to Chinese currency. Although yuan deposits and bonds have already appeared on the market. Many Russian companies work closely with China and they need this currency. Moreover, over the past 10 years, the yuan has looked buoyant. For long-term investment purposes, the yuan now looks preferable to the ruble,” the expert concluded.
Published in the newspaper “Moskovsky Komsomolets” No. 29003 of April 4, 2023
Newspaper headline: Fed “smoking in the dynamite shed”
