Depositors had rushed to withdraw their money after the firm filed a notice that they were selling billions in assets to shore up their finances. The bank was tightly linked to the tech industry, which is beset by layoffs.
Two days later, regulators closed Signature Bank, a New York, US-based financial institution crucial to the cryptocurrency industry, after a deposit run.
And then San Francisco, US lender, First Republic Bank that specialize in private banking and wealth management saw their shares plunge earlier this week, raising the specter of a third major US bank implosion in days.
This is why 11 of the largest banks in the United States stepped in with an announcement on Thursday that they would deposit a total of $30 billion into their smaller peer in the midst of the widening banking crisis triggered by the collapse of the two aforementioned lenders, SVB and Signature Bank.
Bank of America, Citigroup, JPMorgan Chase and Wells Fargo said they would each make a $5 billion uninsured deposit, while Goldman Sachs and Morgan Stanley are each depositing $2.5 billion. BNY-Mellon, PNC Bank, State Street, Truist, and US Bank have pledged $1 billion each.
In Europe, Credit Suisse had disclosed “material weaknesses” in their financial reporting, before announcing this week they would borrow up to $53.7 billion from Switzerland’s central bank to reinforce their finances.
Credit Suisse’s troubles predated SVB’s collapse, and they’re not caused by the same factors that brought down the US banks. But the failure of SVB greatly alarmed markets, and the Swiss bank’s announcements made investors even more fearful of a broader contagion.
This raises the odds that the US economy, already widely seen as prone to recession, might actually tip into one.
The above-mentioned banks have spooked investors who quickly turned their attention to safe haven assets amid concerns of further market turbulence – and this has pushed up gold prices.
Throughout history, gold has been seen as a reliable investment instrument during periods of economic instability, stock market crises, military conflicts and pandemics.
It’s worth highlighting that the central banks of many countries are unleashing a big appetite for gold during 2022 and this year, will be no different. It is claimed that gold-buying is at its fastest pace since the 1960s.
Seeing how Russia has been hit by monetary sanctions by the West, China and other countries are said to be hurrying to reduce dependence on the Dollar by stockpiling gold, analysts reckon.
In fact, central banks and government institutions have been accumulating gold reserves over the past 10 years or so, after the 2008 financial crisis eroded confidence in US Treasury bonds and other Dollar-denominated assets, sending them scrambling to diversify their portfolios. Emerging countries with low creditworthiness are also seeking to strengthen their reserves of gold, which has high liquidity and no sovereign risks.
I had previously read that central banks had bought a net 399.3 tonnes of gold in the July-September 2022 period, more than quadrupling on the year, according to the November report by industry group the World Gold Council. The latest amount marks a steep jump from 186 tonnes in the preceding quarter and 87.7 tonnes in the first quarter, while the year-to-date total alone surpasses any full year since 1967 (Nikkei Asia, November 22, 2022).
Go for gold is good advice!
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