In just this week, two banks in the United States are facing bankruptcy simultaneously.

Silicon Valley Bank, which was considering issuing additional shares a few days ago, announced last night that it was taken over by the Federal Deposit Insurance Corporation.

Two days ago, an American crypto bank, Silvergate, announced that it was ceasing operations.

Concerns about the banking industry have permeated the entire investment market, leading to a significant drop in the U.S. banking industry index this week, with the decline reaching the highest level on record.

However, the situation is far from over, as the Federal Reserve may raise interest rates again by more than 100 basis points on the current basis, potentially reaching over 6%. It is evident that the United States could have a much larger crisis ready to be triggered at any moment.

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01. Bankruptcy of Banks

Silicon Valley Bank was established in 1983 and went public on NASDAQ in 1988. Its position in the American banking industry is akin to that of a top-tier city commercial bank in mainland China.

At the end of last year, the bank still had total assets of $209 billion, with customer deposits of $175.4 billion, and these deposits, being below the limit, are all protected by deposit insurance.

Therefore, the former U.S. Treasury Secretary Summers stated that as long as customers are not affected by the bankruptcy, the bankruptcy of Silicon Valley Bank will not spread to the entire financial system.

However, the specific situation has not yet been verified, as the normal deposit insurance only provides a maximum limit of $250,000 per depositor, and some large corporate accounts may face significant losses, which could affect confidence in the banking industry and potentially lead to a large-scale transfer of deposits in other banks.Once this situation occurs, the entire financial system of the United States faces a huge crisis.

Currently, employees of the bank have been asked to work from home entirely.

02, Bank stock price decline

Affected by the related news, bank stocks are still falling. Last night, the KBW Bank Index fell another 3.9%, marking two consecutive days of significant declines. The weekly drop has reached 15.7%, which is the largest single-week decline on record.

On Thursday, the last trading day before the bankruptcy of Silicon Valley Bank, its stock price fell by 60%. On Friday, the stock of Aries Western Bank also fell by 20%. This has increasingly worried investors that the risk is spreading to more and more banks, and even other financial stocks.

In fact, in addition to Silicon Valley Bank, a leading U.S. crypto bank also announced its cessation of operations on Wednesday this week.

The simultaneous failures of two banks have already caused panic and selling in the financial sector among investors. On Thursday alone, the market value of the four major U.S. banks shrank by a staggering $47 billion.

Now, the U.S. stock market's panic index has risen above 20%. Gold, a conventional safe-haven option, has risen by nearly $50 overnight.

03, A 100 basis point rate hike?

But an even worse situation may come from the Federal Reserve.So far, the Federal Reserve has not realized the extent of the damage that continuous interest rate hikes can inflict on the economy.

It is quite clear that professional analysts are not too concerned about this, considering it an isolated phenomenon that does not reflect the current state of the entire banking industry. The risk of this particular bank has not yet spilled over, and unlike other banks, it has relatively fewer consumer deposits, making the nature of its potential failure quite different.

However, we must look back at the initial Lehman Brothers incident, which did not attract much attention at first, but the subsequent spread of the crisis directly triggered a global financial storm.

Now, the continuous interest rate hikes by the Federal Reserve are increasing the likelihood of such a risk occurring.

Former U.S. Treasury Secretary Larry Summers has indicated that the terminal interest rate set by the Federal Reserve still needs to be raised, and given the current situation, there is a 50% chance that the terminal rate will need to reach above 6%.

If this is indeed the case, it implies that the Federal Reserve will need to carry out multiple interest rate hikes in the future, accumulating at least 100 basis points in total.

The continuous rise in interest rates is transmitted to mortgage rates, potentially triggering real estate risks, with some investment banks believing that the overall price of real estate in the United States will fall by more than 20% in 2023.

At the same time, the constant increase in interest rates has already led to U.S. lending rates reaching above 5%, which will significantly increase the operating costs of the banking industry. Consequently, the risk of bankruptcy for small and medium-sized banks in the United States has been greatly magnified.

In summary, the U.S. economy has a greater risk of a potential bomb being detonated at any time.