With the bankruptcy of Silicon Valley Bank (SVB), the favorite bank of technology startups in the U.S., and then the New York-based Signature, where cryptocurrency investors do business, memories of 2008 came back to life. ‘Bailout’, which became a banished word in the aftermath of the great crisis, was back on the agenda and the damage was contained for now when the Biden administration announced that it would bail out the banking sector but not the bank investors who took the risk. However, the outflow of venture capital from regional banks to larger banks showed that larger ones could also be in crisis. The latest example is Switzerland’s world-renowned banking giant, Credit Suisse.
Of course, the collapse of the SVB has reignited debates about state intervention, regulation, and the end of neoliberalism. The future is uncertain. Prof. Dr. Erinç Yeldan, professor of economics at Kadir Has University, reminds us that a financial system disconnected from the dynamics of the real sector has the potential to create a crisis and says that it is too early to say that everything is under control. Yeldan stresses that the problem is not with the Fed’s interest rate policies, but with a broader and unbridled ‘financial risk appetite’. He underlines that the risk may be more bearable for Turkey, where foreign investors are not showing much interest at the moment.
In the wake of the bankruptcy of Silicon Valley Bank (SVB) in the U.S., the biggest question is whether it will cause a new global crisis. Although the U.S. government’s ‘no bailout’ statements are accompanied by claims that ‘our banking system is strong’, SVB’s place in the ‘startup’ ecosystem raises questions. Given the huge losses of banking and insurance companies in Asian stock markets, do you think some kind of financial crisis has been triggered?
If we go through the things that triggered financial crises in history, what is in question is not a development on a “very large and/or spectacular scale”, but simple, relatively insignificant, and ordinary factors can be decisive. We know that the “herd instinct” of the financial system, which is short-termist, myopic and almost always disconnected from the main indicators of the real sector, can turn even such relatively insignificant and seemingly under control news into major problems or even crises. In the case of SVB, it’s too early to say that, but it is not safe to say that “it’s all over, all is well.”
One of the most important factors in the collapse of the SVB is that the Fed continues to raise interest rates. Some financial companies have already started pointing to a halt to the interest rate hike, citing the ‘liquidity problem’. Is it monetary policy or is there a bigger underlying problem?
I believe that the main factor in question here is not the FED’s interest rate hike policy, but more broadly the uncontrolled risk appetite of global financial markets. The FED rate hike ultimately needs to be weighed against inflation expectations, and real interest rates are still very low or even negative.
Could the fact that SVB attracted venture capital and private equity firms in particular and is now going under be a blow to the capital ideologues who see the future in big tech companies? These large capital groups, which see the state as an unnecessary apparatus and preach that corporations will lead the world, are now calling the state to duty. Could the bankruptcy of the SVB lead to a bifurcation or derailment of U.S. capitalism?
These warnings have indeed been widely voiced, and it is emphasized that the deregulation of the American financial system has been excessive and that “macroprudential” regulations should be applied at least to state and medium-sized banks. However, the most important dilemma is how the American financial system can survive this strict supervision. The financial system knows no rules and knows how to get around every new regulation and render it dysfunctional. The result is new waves of crisis…
Finally, what do the developments triggered by SVB’s bankruptcy mean for countries like Turkey? For example, if this bankruptcy is followed by a new wave of quantitative easing, will this process affect the composition of the government that awaits Turkey during and after the election period?
The same risks continue to exist in a much more dangerous way for Turkey and the group of countries called emerging market economies, which have similar development prospects. It is known that the country most prone to a crisis is the favorite economy of international finance capital. Perhaps Turkey, where the international “investor” is not showing interest at the moment, is under some degree of protection in this sense. It may also be possible for us to cope with a “local” financial crisis through the CBRT (at the expense of high inflation).
