Guoxin Securities: The probability of the bank event in Silicon Valley will not evolve into a broader crisis event

On March 11, the bank team of Guoxin Securities Economics Research Institute believed that the problem of Silicon Valley banks this time was that they absorbed a large amount of low-cost deposits during the period of loose liquidity and allocated long-term bond assets, resulting in a significant increase in potential interest rate risk, and the Fed’s interest rate increase exposed the problem. We believe that the problem rate of banks in Silicon Valley will not evolve into a broader crisis, mainly because the company’s problems are relatively independent and there is almost no cross-risk with other financial institutions. For Chinese banks, there is no direct impact.

Interpretation of this information:

The bank team of Guoxin Securities Economics Research Institute has provided an interpretation of the recent problem faced by Silicon Valley banks. According to them, the root cause of the issue is the accumulation of low-cost deposits during a time of loose liquidity, which was then invested in long-term bond assets. This led to a significant increase in potential interest rate risk, which was further exposed when the Federal Reserve increased interest rates. However, the team is confident that this problem will not result in a broader crisis as the issue is relatively independent, and there is almost no cross-risk with other financial institutions. They further state that Chinese banks will not be directly impacted.

In simple terms, Silicon Valley banks are facing a problem due to their investment choices during a time of low liquidity. This problem was aggravated when the interest rates increased, thereby increasing the potential interest rate risk. However, this issue is not expected to result in a broader crisis as it is relatively independent, and there is no cross-risk with other financial institutions. The impact on Chinese banks is expected to be negligible.