Bankruptcy of US banks: will it have effects for Ecuador?
The fall of Silicon Valley Bank and Signature Bank has changed the landscape and could cause the Federal Reserve (Fed) to stop its decision to continue raising interest rates (a quarter point or half a point). If before the increase depended only on the evolution of the US inflation and employment data, economic experts believe that financial instability could motivate further analysis by the regulatory body. An increase, it is warned, could prevent the ‘waters from calming down’, promote the strengthening of the dollar and thus generate an effect on economies that depend on this currency, including Ecuador.
This is how Fausto Ortiz, former Minister of Economy, explains it, who believes that if there is an impact for the country, it could come through the currency. “We, who have the North American currency, are interested in knowing if (with this) the dollar is going to strengthen or weaken.” An appreciation, he explains, would make the products that Ecuador exports more expensive.
However, analysts do not believe that this impact will occur or that there are greater consequences. They clarify that this financial instability does not compare at all with the financial crisis of 2008, which was caused by a fraud in the sale of the mortgage portfolio.
For the economic analyst Santiago Mosquera, the run on these two banks “is quite localized and will not necessarily permeate the American financial system as a whole. This problem is the typical case of a bank run in which the bank’s assets lose quality and/or liquidity for specific reasons”.
The Federal Reserve, the Treasury Department and the regulatory body agreed on Sunday to guarantee the deposits of all clients of the Californian Silicon Valley Bank (SVB) and the New York Signature Bank, after the bankruptcy of both, as well as offer the rest of the sector a line of loans that avoid new tensions.
In the context of rising interest rates and fears of a recession, Silicon Valley Bank came to suffer large withdrawals of funds, for which it was forced to look for cash. In an attempt to strengthen itself, the firm announced the sale of a portfolio of US Treasury bonds worth 21,000 million dollars. The operation entailed losses of 1,800 million dollars. The scenario caused the fall of shares.