Facing another crisis

In principle, I agree with the assessment presented by the country’s monetary authorities to allay fears about the potential impact of the bankruptcy of two US banks, reminiscent of the 2008 financial crisis, when a bank that was too big to fail: Lehman Brothers collapsed. . Now it has happened with Silicon Valley Bank and Signature Bank.

The Monetary Board immediately convened to analyze the consequences and conceived that there were no direct links between the bankrupt entities and the Dominican banks, which also had liquidity and capital four times higher than subprime loans.

Dominican commercial banks have a late payment rate of just 1.0%. A solvency index of 15.3% as of December 2022, much higher than the 10% set by the Monetary and Financial Law. The same is supported by international currency reserves.

But even when there are no direct correlations, no event in the field of economics remains isolated, and the impact is limited to specific areas only.

In total, the 2008 crisis drove twenty-five banks out of business, unprecedented as only two have crossed the edge recently. But the bankrupts of 2023 show more resources than the previous 25.

There is an element that attention should not be diverted to: the interest rate increases that, led by the Federal Reserve of the United States, are sponsored by the world’s central banks in order to contain inflation.

This factor, in the case of the failing banks, has greatly affected their respective portfolios of United States Treasury Securities, the valuation of which decreases or rises according to the cost of money. Silicon Valley has had a portfolio of bonds placed at rates close to the bottom line, which as interest increases reduce their costs.

This was one of the reasons for the collapse, and unfortunately it is a reason that is not limited to some banks, but affects all of them.

President Joe Biden and his top officials did their best to try to avoid a systemic collapse, ensuring depositors’ savings without access to the 2008 deployments, where key people responsible for bank failures were rewarded.

The results may have prevented worse things from happening, but they were not enough to prevent the spread of the crisis, and the evidence of its impact was what happened with Credit Suisse, which continued with the swift intervention of the Swiss government and strengthened it with sufficient resources to respond to all those who came looking for their deposits .

The question from now on will be whether the priority remains in defeating the colt of inflation or whether the health of the banking system is best, knowing that inflation is the worst tax paid to the poor, but that banking failure also has an inflationary impact that is largely suffered by the economically disadvantaged .

Although there are several factors that make the current crisis completely different from the one that occurred in 2008, because the loans granted to technology entrepreneurs do not cover those that were provided to everyone who wanted to obtain loans called mortgages, we live in very volatile conditions, and what We are still trying to rectify the consequences of Covid19.