Last 15 Days have remained very tumultuous for United States and Federal Reserve Bank of United States as they have failed to safeguard Big US Banks Like SVB and Signature Bank from Falling.
SVB and Signature Bank has collapsed and Federal Deposit Insurance Corporation has taken over the bank to safeguard the interests of the investors .But Investors , depositors , start-ups various companies doesn’t seem to be in good mood till this crisis stabilizes.
The Cash Flow of everyone associated with the fallen Bank has been hit very Badly .What is the root cause for al this PANIC ? It all started after the Covid-19 Pandemic, when United States Printed Record Notes to bring liquidity into the system. However, excess liquidity gave wings to inflation which increased drastically.
The aggressive interest Rate Hikes for last one year by FED has led to sharp fall of Bond Prices in United States. You would like to Know about US Bonds, so US Bonds are debt securities issued by United States Department of Treasury . These Bonds assist US Government to pay for US Borrowing requirements .
US Bonds are considered to be one of the safest investments because they come with an assurety of US Government Credibility and Trust.
Affect on Bonds after interest rate Hike. The value of Bonds has declined very fast after interest rate hike.
What is the relation between Interest Rate Hike-Bond Value Decline -Fall of US Banks? So the US Banks have invested depositors money of their Banks in Bonds (Majority of it) to get a safe return of 6 to 7%. However, the Bond value declined and the depositors panicked that their accounts are not safe and their money too.
Hence, the depositor’s started withdrawing Money in Large scale from SVB and Signature Bank which Ultimately led to the Collapse of these Banks .Now the problem is that there are many Banks n United States which are heavily invested in US Treasury Bonds against the deposits they have which may lead to multiple more Bank Crashed in United States again.
The Economic affect of such falls is expected to be 600billion$ on a Capital Base of 3Trillion$ and multiple Bank Failures in United States and a reduction of 30% capital base.
How Indian Economy will be affected by Bank Falls In United States? If United States economy is in Trouble then understand that your India Exports will reduce to United States as they will reduce their imports from India .Vice Versa the imports will become costly due to bad condition of US Economy. This will only increase inflation in India which is still very high as per the standards set by Reserve Bank of India .
The Indian Banks Private investment will reduced due to this condition of US Economy which is not at all a good sign for Indian Economy for the current year at least.
