Business

‘We’re in another world now’


The Silicon Valley Bank crisis and its subsequent closure have rocked financial markets since last weekend. In an effort to protect depositors and investors, federal regulatory agency announced on Sunday that it would “address any liquidity pressures that may arise.”

Many have described emergency measures as a relief package and say they mark a major shift in the way the federal government handles banking crises. So far, only deposit up to 250,000 USD covered under federal law. But Sunday’s decision by regulators will protect all deposits made at SVB and crypto-heavy assets. signature bankwhich wound management agency down on Sunday, to avoid “systemic risk”.

“We changed the system,” economist Mohamed El-Erian, president of Queens’ College at the University of Cambridge, told CNBC. ink pot in Monday. He also echoes Roger Altman, founder of the investment banking consulting firm foreverthat “we are now in another world.”

“Do we need to do all of this? I think with the emergency over the weekend and the fact that there is no perfect policy response, we have to make some compromises,” El-Erian said of the federal government intervention.

Despite concerns that many individuals and small companies will lose their deposits because of the failure of Silicon Valley Bank, El-Erian is confident his customers will get their money back.

“Depositors should not be worried. Your deposit is fine, he said. “It is almost impossible to go back to the unlimited deposit guarantee now.”

Soon after Silicon Valley Bank’s troubles began, investors called on federal regulators to protect bank deposits. On Friday, billionaire investor Bill Ackman, head of Pershing Square Capital Management, tweeted about how a government bailout “should be considered” if private capital cannot solve the problem of guaranteeing all depositors. After federal officials took action on Sunday, he said the government “did the right thing.”

Another impact of the banking crisis could be the Fed’s monetary policy. Over the past year, the Fed has raised interest rates to curb inflation, and that’s set to happen continue into the rest of 2023. Now that SVB and Signature Bank have failed in the past few days, the Fed may rethink further rate hikes at its next meeting later this month, El-Erian speak. Rising exchange rates are the source of SVB’s problems, based on Finance Minister Janet Yellen.

“We have had a very loose monetary policy for a long time. When it comes to adjusting monetary policy, the Fed didn’t act fast enough and then had to put the brakes on,” El-Erian said, referring to the Fed’s rate hike.

While the Fed may consider revising its approach to interest rates, El-Erian said the central bank must not stop raising rates entirely because inflation remains a big issue.

He told CNBC: “The market has voted that the Fed will back out of the fight against inflation. I will raise 25 basis points, explaining that I have other tools that I can use for good reason. financial determination”.

This story was originally featured on Fortune.com

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