Central banks may ‘ease rate hikes’ after Silicon Valley bank collapse

Some financial analysts say the collapse of the Silicon Valley bank could increase pressure on central banks to ease interest rate hikes.

Bestinvest private finance analyst Alice Hein said: “The collapse of two US banks in recent days: Silicon Valley Bank and Signature Bank; It is a reminder of the risks that arise when central banks such as the US Federal Reserve aggressively raise interest rates.

“The problem at the heart of SVB’s failure is that it suffered huge losses on its bond investments amid rising US interest rates and a sell-off as their clients — typically tech startups — began to pull money out.”

Ms Hayne said the authorities had acted quickly and hoped HSBC’s £1 deal to take over the UK unit of the failed Silicon Valley Bank (SVB UK) would help restore confidence.

While the failure sent UK bank shares tumbling, it is not a particular threat to UK banks, but rather general jitters across the market, and bank share prices are likely to rebound.

Alice Guy, Interactive Investor

He continued: “After more than a decade of very low interest rates, there is always going to be some downside to a 180-degree turn to a new era of rapidly rising rates.”

Ms Hein said the recent move “should help calm short-term market jitters and may actually provide a boost to the stock market” as it reduces the likelihood of a return to aggressive interest rate hikes.

US Federal Reserve Chairman Jerome Powell has previously hinted that the Fed may raise interest rates sooner than expected.

The next decision of the Bank of England on the base rate is on March 23.

Alice Guy, head of pensions and savings at Interactive Investor, said: “The failure of a Silicon Valley bank is worrying pension investors and bringing back bad memories of the 2008 financial crisis.

“But fortunately, SVB’s failure is an isolated incident and is unlikely to have a major impact on investors.

“The UK and US governments acted quickly to shore up the bank and ensure small businesses can access their money this week.

“While the failure has sent UK bank shares down, this is not a specific threat to UK banks, but rather general nervousness in the market, and bank share prices are likely to rebound.

“Since the financial crisis, rules and regulations for banks have been tightened to protect consumers and keep deposits safe.”

Ms Guy added that the developments would “increase pressure on the UK and US central banks to ease interest rate hikes when they meet next week for a decision”.

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