Now that Silicon Valley Bank has been forced out of business, the US government is busy sticking the Band-Aids. Customers of the bankrupt bank have been promised that they will get their money back. It looks like it will end in failure, but it’s still “too early to take your eyes off the ball,” warns economics professor Dirk Bezemer of the University of Groningen.
Bezemer isn’t surprised that Silicon Valley Bank went bankrupt. “After interest rates went up last year, the entire cryptocurrency industry was actually affected. This is then the most pyramided speculative industry. Now this seems to be the next industry, and many people are also worried about the future of the global real estate market.’
The professor considers the possibility that a situation like that of 2008 will reoccur very small. According to Bezemer, the SVB is first of all a fairly small bank and the risk of a fallout is not that great. The customers of the bankrupt bank are also protected by the government. ‘This indicates that central banks particularly see risk in customers who may default. If that happens, there will be a domino effect in the tech sector,” Bezemer explains.
Financial calamities
The technology sector is a risky and innovative sector that can be hit quickly if interest rates rise. “When interest rates go up, you enter a riskier environment. There are all kinds of industries, beyond just technology, that could be affected. The same goes for pension funds, for example, because they had enormously high assets at low interest rates.’
‘It doesn’t look very exciting right now’
A rise in interest rates after a long period of low interest rates leads to vulnerabilities in all kinds of areas and possible further financial calamities. Bezemer argues that it is important that it does not escalate into a financial crisis. “But it doesn’t sound very exciting right now.”
Real estate sector
Real estate is also an industry where the necessary risks are taken and where there can be a lot of problems. Not only in the Netherlands, but also in the USA, the UK and many other European countries, house prices have risen sharply since 2015. The question is how quickly house prices will fall again and what damage this will cause subsequently to families, says Bezemer. “It looks like it’s not too bad in the Netherlands at the moment, but we shouldn’t be too easily reassured about that.”
In recent years, far fewer interest-only mortgages have been issued in the Netherlands. This reduces the possibility that many families will end up under water if house prices suddenly collapse. ‘As for the SVB, it seems to be fading for now, but the market is in a state of flux. It’s still too early to take your eyes off the ball,’ warns Bezemer.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
