15 Mar 2023

Moody's Warns Of Increasing Troubles For US Banks After Silicon Valley Bank Collapse; Could Our Banking Sector Be Affected?

New York: American rating agency Moody's has warned that the US banking system may face more problems in the future after the collapse of Silicon Valley Bank (SVB).

Moody's has downgraded the US banking sector from stable to negative in its rating list for the banking sector and warned of a sharp deterioration in the working environment at banks. Moody's has downgraded US and European banking stocks in view of the already ongoing decline and also pointed to the risk of customer abandonment for some banks.

The statement said that rising interest rates are also challenging, due to which banks that buy assets like government bonds at low interest rates may now have to bear the loss.

Many other banks of world are also in trouble

Many other banks of the world are also in trouble but our banking sector is unlikely to be affected

Governments around the world are increasing interest rates at a rapid pace to control inflation. In such a situation, like Silicon Valley and Signature Bank, many other banks of the world are also in trouble.

Experts say that it is unlikely to affect our banking sector. This is because our banking system is huge.

Economists say that compared to America, India has more strict and transparent laws regarding banks. Because of this, Indian banks cannot invest more than a fixed limit anywhere. For this reason, the chances of money sinking in Indian banks are less.

21 Indian companies also badly affected by sinking of SVB 

On March 10, 2023, America's 16th largest Silicon Valley Bank (SVB) collapsed. Just two days later, on March 12, the news of the sinking of America's Signature Bank came to the fore. After this, the assets of these two banks were taken under the control of the American regulator.

Investors have lost more than Rs 38 lakh crore due to the collapse of Silicon Valley Bank.

Investors around the world have lost more than Rs 38 lakh crore due to the collapse of Silicon Valley Bank alone. 21 Indian companies have also been badly affected by this.

Interest rate risk and liquidity risk

Economists say that usually a major reason for the collapse of a bank is a surge in loan default cases, but this has not happened in both these cases. Experts related to the banking sector say that two major reasons for the sinking of Silicon Valley and Signature Bank are coming to the fore. These are: interest rate risk and liquidity risk.

In America only bank deposits up to Rs 2 crore are insured only

In March 2023, as soon as the possibility of sinking of Silicon Valley Bank began to appear, customers suddenly started withdrawing money deposited in this bank. This caused the complete failure of the Silicon Valley banking system on 10 March. 

Something similar happened with Signature Bank, which became famous through cryptocurrency. In America, the Federal Reserve has a rule that insurance is done only on the amount deposited in the bank up to Rs 2 crore.

Most of the people and companies had deposits of more than Rs 2 crore in these two banks, so as soon as people started withdrawing the money, the bank started getting completely empty.

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