The Wall Street stock market risk indicator, the S&P VIX, jumps by 13% amid fears of a banking system downturn

Market Analysis 03 Sep 2021

The Wall Street stock market risk indicator, the S&P VIX, jumps by 13% amid fears of a banking system downturn.

By March 10th, the U.S. financial institution experienced the largest banking failure, the first time since the Washington Mutual collapse. Silicon Valley announced its closure on Saturday while it deals with its first sharp decline since 2008.

Experts say that the Silicon Valley decline was predicted in light of recent Federal Reserve monetary policies.

Silicon Valley is not like other major banks, and that’s due to its market sensitivity and vulnerability to the news. The BNK is the largest bank that deals directly and exclusively with technology and start-up firms, which increases its failure odds.

Many factors have led to these catastrophic results, but the one that matters the most is higher interest rates and bond price declines. It is well known that higher interest will cause a steep decline in bond prices, and bond market value will decrease in the end.

The Silicon Valley Bank has been buying billions of market bond values over the past 2-3 years for long-term investment purposes.

Yet, unexpected inflation has changed the market’s condition for the better. Technological stock prices have been falling since the start of last year, and bond prices have also declined as a result of the Federal Reserve’s aggressive key interest rate hikes.

The Wall Street stock market risk indicator, the S&P VIX benchmark, rose by 13% as of Monday, 9:58 p.m. ET. The S&P 500 benchmark was down 0,12%, the Nasdaq indexes rose by 0,34% and the Dow feature added 0,32%

Prospectively speaking, the impact of higher interest rates on Silicon Valley Bank and Wall Street will depend on the magnitude and speed of the rate increases. This also includes other factors such as economic growth and inflation expectations. It’s worth noting that higher interest rates are typically a sign of a stronger economy, which can be positive for banks and the financial markets over the long term. However, in the short term, they can cause volatility and uncertainty in the markets.

In this particular case, it’s in the best interest of the Federal Reserve and the U.S. economy to pause raising key interest rates. at least in March.

Meanwhile, investors have turned their focus on today’s meetings and the solution from the Silicon Valley meeting. Particularly with large uninsured deposits

Most bank clients deal with large amounts of deposits, which usually take weeks to have access to. The bank clients can’t wait weeks to get access to their deposits, and that could create more pressure and multiply the bank’s issues in the future.

Silicon Valley Bank may be more vulnerable to higher interest rates than other banks. This is because many of its clients are early-stage companies that may have limited cash reserves and be more sensitive to changes in borrowing costs. If interest rates were to rise, Silicon Valley Bank’s clients may find it harder to borrow money, which could lead to a decline in loan demand and revenues for the bank.

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