Iran will pursue whatever secures its interest, government spokesperson Fatemeh Mohajerani said on Tuesday, when asked if there could be direct talks with the Trump administration.

Donald Trump's impending White House return poses questions once again about conflicts of interest related to his business empire, with new cryptocurrency and other ventures raising fresh concerns.

SVB collapse shows interest rate financial stability threat Expert comment LJefferson 15 March 2023

Governments must resist pressure to relax post-financial crisis regulation, while central banks should moderate their attack on inflation if financial stability is at risk.

The collapse of California’s Silicon Valley Bank (SVB) on 10 March has triggered a wave of volatility in global bank equity prices, raised questions about whether US bank regulation and its tech industry funding model are fit for purpose, and forced a rethink on the extent and pace of monetary policy tightening appropriate for the US and other advanced economies.

SVB was the US’s 16th largest bank with total assets of $212bn at the end of 2022 and a presence in eight countries around the world, including the UK. Since it was founded 40 years ago, it has maintained a strong focus on the technology sector, claiming recently that nearly half of all US venture-backed technology and life science companies banked with it. Partly as a consequence, some 95 per cent of its deposits came from corporates and hedge funds, far higher than the one-third typical of similarly sized banks.

What led to SVB’s collapse?

Ironically, SVB’s failure did not result from its core business model of serving a relatively high-risk and fast-growing sector, but rather from a dramatic failure in liquidity management. During the pandemic, SVB saw a very large inflow of corporate deposits. But rather than disincentivizing depositors or investing the funds attracted in assets of matching maturity, it chose to invest them in low credit risk, but long maturity bonds attracted by a small pick-up in return over shorter-term assets. 

When US interest rates began to rise rapidly in 2022 following Russia’s invasion of Ukraine, the value of SVB’s long-term bond portfolio declined sharply. It was left facing a large capital loss of some $15bn, roughly equivalent to its total shareholder funds. The management attempted to repair SVB’s balance sheet last week by crystalizing some of the loss and raising new capital.

But when this failed, the US supervisory authorities had no choice but to step in and close the institution.  This action was quickly followed by emergency action from other regulators vis-a-vis SVB subsidiaries and offices around the world.

The US entity has formally been taken over by the FDIC and a bridge bank established. All depositors have had their funds guaranteed, going beyond the normal federal deposit insurance limit of $250,000 per customer. However, bond holders and equity holders have been wiped out. The authorities have said that any loss will be covered by the industry as a whole via the FDIC.

In the UK, the Bank of England was able to sell the ring-fenced UK subsidiary of SVB to HSBC for £1 over the weekend, so that all its depositors and other liability holders have effectively had their funds guaranteed. In contrast to previous Bank of England rescues (such as Johnson Matthey Bank in 1984, the ‘small banks’ crisis in 1991 and the global financial crisis in 2008-9) no public money has been put at risk.

Four key questions

SVB’s rapid collapse raises four central questions:

First, how was it that the bank was able to take on such a risky interest rate maturity mismatch in its US operations? Maturity transformation is standard banking industry practice, but it is usually closely monitored by regulators who place limits on the extent of interest rate maturity mismatch and require liquidity buffers to offset the risk of deposit flight and forced asset sales.

SVB’s very high concentration of corporate deposits as compared to ‘sticky’ retail deposits, means that the risk of deposit flight was unusually high and so the bank should have been more, not less, cautious in its liquidity policy. SVB was classed as a regional bank in the US which means that it did not have to meet international regulatory standards under Basle III. And in 2018, the Trump administration approved legislation removing the post-financial crisis requirement that banks with assets under $250bn submit to stress testing and relaxing liquidity buffer requirements.

But it is still hard to understand why regulators allowed SVB to commit such a classic banking error. On Monday, the Federal Reserve ordered an inquiry into what it has correctly described as a regulatory failure. This should look at the role played by all the elements of the oversight system including the auditors, KPMG.

Second, does SVB’s failure reflect a much bigger underlying risk in the US banking sector, and potentially other banking systems around the world, built up over the prolonged period of ultra-low interest rates? SVB’s collapse was followed by the failure of the $110bn Signature Bank in New York, as well as sharp falls in US regional bank stock prices – by close of play on 14 March, the S&P Regional Bank Index was down 22 per cent on a week before, with some individual bank stocks seeing much sharper falls.  

To the extent that banks have been covered by international bank regulatory requirements, the risk of a much broader problem should be limited because stress testing and other regulatory tests would have looked at precisely the scenario that has happened. Even where large market losses have been incurred, capital buffers should be sufficient to cover them. But as SVB has shown, there are some large banks that are seemingly not required to follow international rules, while the latest developments at Credit Suisse indicate that market concerns may still arise when other factors are in play.

Third, how far, in the light of the potential vulnerability in banking systems, should central banks in advanced countries moderate their efforts to squeeze out inflationary pressures? While inflation already appears to have peaked in many economies and the pace of interest rate rises was expected to slow, inflation is far from vanquished, as recent data in the US has demonstrated.

Fourth, does the failure of SVB tell us something new about the financial risks facing the high technology sector?  It was remarkable that a single (and not particularly large, by international standards) financial institution could have played such a central role in the tech sector in both the US and UK. 

Why was this the case and does it reflect special features of the tech/start-up sector (e.g. the need for substantial cash deposits to cover relatively large negative cash flows in the early years of operation, or the need for highly specialized lending expertise). If so, should governments take steps to mitigate such risks, given the outsized importance of this sector in many national economic strategies? 

It sounds like an oxymoron: “How to keep blood-sports interesting?” You’ve got blood and you’ve got sports, the term does its own advertising! And yet, fighting promotions rise and fall, where Pride and Strikeforce once reigned, now stand One and Bellator, but one promotion stands above all its competitors. The world of MMA knows one promotion which has clawed its way to the international top and established itself as the gold standard upon whose hallowed surface skulls are crushed and blood is poured. I’m talking about none other than the UFC.

Having established itself over the years as a beacon of both quality matches and consistent drama, the UFC attracts the lion’s share of international talent in the MMA world, and with it the eyes and ears of MMA fans everywhere. Having well and truly stroked the ego of the promotion, you might be wondering what on earth any of this has to do with writing or fantasy?

Well, does your world happen to feature prizefighting, ritual combat, or the eternally popular fantasy fixture called the gladiatorial arena? If so, there are a lot of writing and worldbuilding lessons you can learn from observing the biggest promotion in the biggest modern blood-sport of the world.

Continue reading Lessons from the UFC: How to Keep Blood-Sports Interesting at Mythic Scribes.

A “moat” is a common term associated with Nvidia and its proprietary products that lock customers into their hardware and software. Another moat breakdown should have them concerned. The U.S. […]

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CME Group, the world's leading derivatives marketplace, today announced that open interest in its global benchmark Henry Hub futures contract reached a record 1.73 million contracts on October 30,...

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Iran will pursue whatever secures its interest, government spokesperson Fatemeh Mohajerani said on Tuesday, when asked if there could be direct talks with the Trump administration.

Donald Trump's impending White House return poses questions once again about conflicts of interest related to his business empire, with new cryptocurrency and other ventures raising fresh concerns.

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Donald Trump's impending White House return poses questions once again about conflicts of interest related to his business empire, with new cryptocurrency and other ventures raising fresh concerns.

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Interesting use cases of SAS job web applications was published on SAS Users.

All over the world, women have been clamouring for gender equality, development and peace in the interest of all humanity. The calls reached a crescendo with the Beijing Declaration and Platform for Action (BDPfA) put in place in September 1995 under the auspices of the United Nations (UN). The Beijing Declaration was particularly targeted at ensuring that the voice of women everywhere was heard, while recognising the diversity of women, their roles and the circumstances inhibiting women’s interests. The BDPfA also aimed at ensuring the full implementation of the human rights of women and the girl child as an inalienable, […]

Cruise missiles are easier targets for dense, integrated air defenses than ballistic missiles are. But ballistic missiles are often fired from known launch points.

Title: 'Extended Cycle' Contraception Garners More Interest
Category: Health News
Created: 8/25/2008 2:00:00 AM
Last Editorial Review: 8/25/2008 12:00:00 AM

Purpose:

Providing medication abortion in the primary care setting is a promising way to increase access to abortion, a threatened service in many States. This study aimed to characterize primary care clinicians’ interest in prescribing medication abortion, what barriers they face in adding this service, and what support they need.

Kelley doesn't want to bang Gambit that bad. Chris wants foilage in games. Jason discovers a new service at the spa. And Josh tells everyone, "Go away, I'm brooding."

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Around half of Wales’ community pharmacies have expressed interest to health boards in providing COVID-19 vaccinations as part of the national programme.

Oct 6, 2020

Simon Saradzhyan writes that the benefits that discontinuing the war on Russia’s terms can generate for defending or advancing Russia’s vital interests will exceed the costs of doing so.

Hello Members,In one of the client case, he is partner at different firms. In one of the firm, the interest given to him on his Capital is consider as infusion of Capital since they had missed deducting TDS on the same. Now when we are filing his personal ITR, how do we con

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The Hong Kong Inland Revenue Department has announced a further reduction to the interest rate payable on Tax Reserve Certificates.

The Hong Kong Government has gazetted legislation to provide tax concessions for carried interest distributed by eligible private equity funds operating in Hong Kong.

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The Hong Kong Inland Revenue Department has announced a further reduction to the interest rate payable on Tax Reserve Certificates.

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In an October 15, 2020, statement, the Swiss Government announced it will not pay interest on federal taxes paid early.

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IWMI research shows that cocoa farmers in Ghana are interested in solar-powered irrigation pumps but face financial barriers. Policy changes and education are needed.

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World Health Organisation's Director General Margaret Chan has sought to send some conciliatory signals to the drug indu

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