Financial Crisis: Impacts, Risks, and Dilemmas

The potential bankruptcy of Svb Bank could trigger a chain reaction leading to a market collapse and financial instability.

### SVB Bank Run Crisis and Its Impact on the U.S. Economy
* 🏦 Following the Svb Bank Run crisis, panic has spread in the market, and the stock prices of large banks such as J.P. Morgan, Bank of America, Wells Fargo, and Citigroup have been **continuously falling**.
* 💸 Due to the characteristics of a bank run, there is continuous pressure for withdrawals, and if the benchmark interest rate continues to rise, the bond interest rate will also rise, leading to **further losses**.
* 📉 The market evaluation of the crisis was very harsh, with SVB's stock price dropping by **60% during regular trading hours** and an additional **22% in the aftermarket**.
* 🔒 It is inevitable that the losses will increase, and SVB has announced a **15% rights offering** to prevent **complete capital erosion**.
* 🏛 The crisis has raised concerns about the **stability of banks with similar business structures**, and there are fears that the situation could lead to a **domino effect of bank collapses**.
* 📈 With the Federal Reserve facing challenges in controlling inflation and the economy, the market is closely watching the upcoming **FOMC interest rate decision**.
* 🏦 In the current situation, there is a high possibility that if Powell continues to raise interest rates as the Fed wishes, **banks will become more anxious**.
* 🤔 Powell is facing a dilemma where he must balance the need to **control inflation** with the risks posed by **further interest rate hikes**.

Yesterday, the number of claims for unemployment benefits was high. It seems like the recession is starting. People were saying, The stock market went up because the interest rate might not be lowered to 0.5%. But with the Svb Bank Run crisis, that doesn't matter anymore. Panic has set in. As you can see, there was no rebound, just a continuous decline. This continued until the afternoon. If a bank cannot return the money to its customers and goes bankrupt, it's not just that bank that fails. Since the money is interconnected, other banks could also fail, and companies could collapse one after another. In 2008, the United States experienced trauma from the Lehman crisis. But now, if one bank goes bankrupt like Svb, it's inevitable that the stock market will have a seizure. In conclusion, I don't think that Svb alone will reach the level of Lehman, but if a bigger bank collapses following the Svb crisis, then...

There may be genuine fear in the market. However, after Lehman, Basel III was introduced. As the soundness of banks' assets has greatly improved, it is believed that the situation will not reach the same level as in the past. Discussions like bank runs and financial collapses become a luxury. When banks collapse, it's like the ground collapsing. Companies borrow money from banks and conduct business to make money based on the financial foundation of banks. If the ground collapses, the building cannot remain intact. Usually, when a financial crisis hits, many companies collapse. Banks collapse, unemployment rates soar, and the economy stagnates. Meanwhile, inflation has not been controlled now. It may be controlled later. Controlling inflation is not a precursor but a consequence.

The Fed still needs water, but should we stop raising interest rates? It can be embarrassing. If we hesitate and miss the golden time, a bigger collapse could occur. Of course, we hope it doesn't go that far. When looking at the soundness of large banks, it's completely different from 2007 and 2008; they are much healthier. However, the fact that such concerns arise is not good for the stock market. Therefore, it may be desired in the market, even though it's not at the stage to discuss these issues. In a situation where Powell continues to raise interest rates, like the scare of the collapse of the UK pension fund in October last year, it's about instilling fear. We will really raise interest rates more. It seems like the market will collapse, the banks will collapse. Are you okay? Can you endure it? By pressuring with such news, the Fed may have no choice but to suppress interest rate hikes.

You can only do 0.25 out of 0.5, so you can do it three times with 0.25. If indicators show an economic downturn, deflation, or rising unemployment, the Federal Reserve may feel pressured to raise interest rates in the future. Then, the stock market could actually rise. Of course, this kind of situation can occur. In such a pressurizing situation, prices are not likely to fall. From the Fed's perspective, they are now facing a dilemma. Depending on their choice, the stock market could fluctuate. The stock market may become more volatile than recently. When these events occur, the market often reacts unexpectedly, either rising despite negative news or falling due to positive news. This kind of volatility in the market can lead to unexpected events. Other than SB, where are the risks high?

We are a bank that does business in San Francisco, primarily lending to startups and venture capitals. However, as interest rates rise and liquidity decreases, the funding sources for venture companies dry up. Initially, these startups have no or little revenue and continue to rely on investments. Since they cannot attract investments, they cannot repay their loans. While other banks have lent relatively small amounts to startups, the impact is minimal for them. However, our bank heavily invested in startups, so if the funding cannot be recovered, it will be recognized as a loss on our balance sheet. As the situation worsens with SUVs having poor profits and asset holdings, their credit ratings are downgraded. Moody's has downgraded them. The idea of lending to startups means that if you deposit money in this bank, you can also get high deposit interest rates, like a high-risk high-return situation.

Investors who wanted to invest a lot of money are now worried about stability, so they will withdraw their money. The bank needs to sell the held bonds to return the money as customers request withdrawals. They said, Wait until I return the money now. Please refrain from withdrawals. So, they need to sell the bonds, but as the interest rates have increased, the bond prices have dropped. If they sell the bonds, the loss is confirmed, and the capital decreases. They had $90 billion in bonds held, but the valuation is $76 billion. Why did they incur a loss of $15 billion? The Fed raised interest rates, causing bond interest rates to rise, and bond prices to fall. So, they are in a state of some loss. The capital is $16.5 billion, but the loss is.

If you say 15 billion dollars, the remaining amount is 1.5 billion dollars. If the bond interest rate rises a little more, it could lead to complete capital erosion and potential bankruptcy. The amount of bonds to be sold this time is 28.6 billion dollars, but the evaluation amount is 26.15 billion dollars, resulting in a loss. Due to the characteristics of bankruptcy, there is continuous pressure for withdrawals, and if the benchmark interest rate continues to rise as Paul mentioned, the bond interest rate will rise again. It has dropped now and hit 4%, but with today's crisis, it dropped to 3.8%. If Seoul continues to raise the benchmark interest rate, the U.S. interest rate could exceed 4%. Generally, it is not viewed favorably in the market when it exceeds 4%. It could surpass the limit rate, reaching a level where companies and banks can no longer withstand it. That's why [MUSIC]

It is inevitable that the losses will increase, so what can we do? There is only one way to prevent complete capital erosion. We will have to do a 15% rights offering to dilute. Even if we do this, will recovery be possible? I don't think so. It's not a normal bank in the first place. Because the bank lends to startups, will the bank acquire SB View or provide investment to supplement capital? Even if they do, will the loans there be money that can be repaid? They may just be loans with accounting value, which may turn into loans that cannot actually be recovered. So, since lending money here could also result in losses for oneself, no one will be willing to help. There will probably be no one willing to participate in the rights offering. After this incident, how did the stock price react? The market evaluation was very harsh. It dropped by 60%. And in the aftermarket, it dropped by 22%.

In just one day, 80% is gone, but in the market, whether it's a capital increase or whatever, they see this as over. Who would help by saying they will do a capital increase for a company on the verge of collapse, that it can survive? It's not a company with technology or a company with a brand. It's just a company that holds bad debts by borrowing money. Then, are the banks okay? In the market, it seems that it may not be so. J.P. Morgan fell by 5.4%, Bank of America by 6.2%, Wells Fargo by 6.1%, and Citigroup by 4.1%. The stock prices of large banks have been falling continuously. It means two things. As long as interest rates continue to rise, even high-quality banks like SBV will eventually collapse one by one from the bottom. Non-premium customers will not be able to repay their loans, and banks will have to sell bonds at a loss to raise cash and maintain capital.

As credit deteriorates, credit ratings drop, and customer withdrawals increase, step by step, premium-grade customers will rise. Starting from the subprime in 2007 to the bankruptcy of Lehman, one of the top 5 investment banks, in 2008, it is not impossible to see that this process led to it. Secondly, in this process, the economy will greatly stagnate, causing banks to have nowhere to borrow money from, leading to a decrease in trading volume, lack of lending, economic stagnation, less profit from investments, and investment banks struggling to survive. With the Federal Reserve failing to control inflation properly, banks are already reaching their limits, showing that profitability may deteriorate. It is an event that shows that when the structure of Svb and the business is defective, it could happen, but later, U.S. regional banks.

If one falls, the conversation changes. When a bank with a traditional business structure collapses, it serves as a warning that even large banks can collapse. So, what's important is that we shouldn't let a second bankruptcy happen, especially by turning a local bank into one. If it affects banks with traditional businesses, it could lead to even greater panic in the market. The FOMC interest rate decision is set for the 11th, with about ten days left, and an event like this has occurred. If interest rates are raised so high but fail to control inflation, isn't it a mistake of the Fed's interest rate hike omnipotence? Shouldn't there be other measures as well? Who has been loosening money like this behind the Fed's back, causing the failure to control inflation? Such statements could be made. Also, there will be a re-election next year. From the Democratic Party's perspective, something needs to be done quickly now.

As interest rates continue to rise, some may think that the second and third rate hikes could lead to a bank run. Then, the public will be dissatisfied with the current administration, as prices will rise, and they may put more pressure on the Federal Reserve. If Powell cannot freely raise interest rates due to the failure to control inflation properly, he could become a bond hostage at any moment. Alternatively, he may announce a slower pace of interest rate hikes, targeting not a 2% inflation rate but a 3% annual target. It's a very ambiguous choice. There is a high possibility that in the current situation, if Powell continues to raise interest rates as the Fed wishes, banks will become anxious. On the other hand, if he halts the interest rate hikes, he will have to give up on controlling inflation, leading to a dilemma. Therefore, Powell is considering making a cautious decision, and there is a possibility of opting for a middle-ground choice. Recently, [END OF TRANSCRIPT]

As it was a promotional video, people were investing comfortably, but it seems that we have reached a point where volatility is increasing again. Please keep an eye on it and respond accordingly. We will provide you with good information next time as well. Please subscribe, like, and turn on notifications. Thank you.

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전인구경제연구소

The Impact of the Svb Bank Run Crisis on the Market

The Svb Bank Run crisis has caused panic in the market, leading to continuous decline and fear of a larger financial collapse.

The interconnectedness of banks and the potential for a chain reaction of failures is raising concerns about the stability of the stock market.

The improved soundness of large banks, as a result of Basel III, provides some reassurance, but the situation is still contributing to market instability.

The Impact of Rising Interest Rates on the Stock Market and Startup Lending

The Federal Reserve may raise interest rates in response to economic downturn indicators, leading to a potential rise in the stock market.

The rising interest rates can dry up funding sources for startups, especially for a bank heavily invested in this area, leading to potential losses.

The bank faces a dilemma as investors withdraw their money due to concerns about stability, while the increased interest rates cause a significant loss in bond valuation.

The Impact of Rising Interest Rates on SB View and Large Banks

SB View faces potential bankruptcy due to rising bond interest rates, leading to a significant stock price drop.

The company plans a 15% rights offering to prevent complete capital erosion, but the market reaction is harsh, with little hope for recovery.

The impact of the situation is also reflected in the continuous fall of stock prices for large banks like J.

Morgan, Bank of America, Wells Fargo, and Citigroup, indicating a broader concern about the effects of rising interest rates.

The Impact of Credit Deterioration on Banks and the Economy

Credit deterioration leads to a rise in premium-grade customers, but also causes economic stagnation and a decrease in bank profitability.

The potential collapse of investment banks, like Lehman Brothers, can have a domino effect on the entire banking system.

The upcoming FOMC interest rate decision and the need for quick action from the Democratic Party add to the sense of urgency in addressing the situation.

Potential Impact of Rising Interest Rates on the Federal Reserve and Powell

Rising interest rates could lead to a bank run and public dissatisfaction with the administration.

Powell faces a dilemma of controlling inflation while avoiding becoming a "bond hostage.

" He is considering a cautious, middle-ground decision, possibly targeting a 3% annual inflation rate.