While governments are backing systematically important banks, there are businesses dying everywhere, writes Christopher Joye.
If there was any doubt, our long-awaited interest rate-fuelled default cycle is here. And it’s ruthlessly wiping out exposed zombie companies left, right and centre.
The third, Silicon Valley Bank , was a similar, albeit more complex, story. Simply put, a conventional bank that had dedicated itself exclusively to servicing just one industry sector, technology , and one geography, California’s Santa Clara Valley, known as Silicon Valley. The problem is that all these debt securities were fixed-rate, rather than floating-rate, with an average maturity of 6.2 years, which exposed SVB to profound interest rate risk.
It’s not hard to imagine how SVB’s leadership might have convinced themselves that this was an attractive trade. Up until 2022, much of the world had embraced the idea that we were in a “new normal” where rates would remain low forever.
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