The US financial crisis that ripped through the banking and financial system in 2008 and had a cascading effect on the world economy, has again raised its head and shook the system. Of course, this time it's not the default on the subprime mortgages which impaired the cash flows in the banks and FIs' balance sheets but with securities valuation.
The failure of Silicon Valley Bank (SVB) and Signature Bank in a gap of 48 hours (March 10 & 12) sounded an alert in the Fed's office. SVB specialised in serving tech companies and Signature, clients with large-scale crypto holdings. However, the malady and resultant agony for both turned out to be rather similar.
A bank is perceived to be a haven for parking investible surplus and rightly so, because of the statutory control administered by the central bank of the state. The pooled in deposit from the members of the public finds its way to either lending or investments. Both generate a certain percentage of return over a period which goes back to the depositors, based on the commitment made by the bank. In the process, the bank takes a cut which pays for the administrative and other running costs incurred by the bank. While this is a very simplified banking arithmetic cycle, it has other complexities when it comes to managing what in financial parlance, we call a time value of money (TMV).
This story is from the April 01 - 30, 2023 edition of BUSINESS ECONOMICS.
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This story is from the April 01 - 30, 2023 edition of BUSINESS ECONOMICS.
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