SEB Bank Wealth Management chairman Jānis Rozenfelds has released an optimistic explanation for the situation in regards to the shocking news reported this week – the sudden insolvency of US Silicon Valley Bank.
According to him, clients of this bank withdrew USD 42 billion from this bank in a single day, forcing the regulator to shut down this bank. On top of that, another US bank went under – Signature Bank. Although new details about the causes of the banks’ insolvency keep surfacing, the information available at the moment suggests insufficient risk management and major problems with control and monitoring mechanisms in these banks, says Rozenfelds.
«Many media outlets report this is the most severe shock for the US banking sector since 2008, when US bank Lehman Brothers went under. Unlike this bank,
the bankruptcy of the two recent banks will have limited influence.
Of course, stress for the financial system is never a good thing, and in the recent weeks this has had a negative impact on the work share market indexes.
What does this mean for pension and deposit plans in Latvia? Because plans for deposits are done by financial markets around the world, we can already see indirect effects – the market’s reaction to the recent developments in the US also negatively affects other assets. Next week could prove rather unstable for financial markets. The decision for the European Central Bank to raise the base interest rate by 0.5% yet again to 3.5% indicates it does not see a systemic problem is such developments.
In parallel to the difficulties in the US banking sector and the problems experienced by the Swiss Credit Suisse, investors are waiting for the decision from the US Central Bank. These always affect the world’s financial markets.
Generally, short term trends for Latvia’s active and conservative pension plans vary – active plans, the majority of which are invested into shares, experience drops in the short-term, whereas conservative plans, the majority of which are invested into fixed-income securities, reach upwards.
This does not mean participants of active plans have tough times ahead. It is possible the current situation could offer investment opportunities in the future. When making long-term savings, for pension included, it is important to keep in mind that financial markets are cyclic – growth is followed by drops and vice versa. This means results have to be viewed in a long-term perspective,» reminds SEB Wealth Management chairman.
Also read: Luminor Bank predicts lower inflation and slightly higher purchasing power