Fallout from Silicon Valley Collapse Sparks Fear of Banking Crisis

Today on Thursday, safe-haven currencies such as the dollar and yen experienced an increase in demand amid concerns over a potential global banking crisis this comes after the ripple effect of Silicon Valley Bank’s collapse in the United States crossed over the Atlantic to Credit Suisse in Switzerland.

In the latest blow to investor confidence in the financial sector, Credit Suisse’s stocks plummeted by up to 30% yesterday after the bank’s largest shareholder stated that they cannot offer further support.

The decline of the troubled lender’s stocks compelled the Swiss National Bank (Central Bank) to provide financial rescue, in an unprecedented move.

Credit Suisse bank announced at the start of Asian trading today Thursday that it will borrow up to 50 billion Swiss francs (54 billion dollars) from the Central Bank.

Traders turned towards traditional safe-haven currencies, bolstering the US dollar and the yen, amid growing concerns that pressures emerging between banks in the United States and Europe could be a sign of a widespread crisis.

In early Asian trading, the yen rose by approximately 0.5% and reached a new exchange rate of 132.73 against the dollar. This gain comes after yesterday’s increase of 0.6%.

Against the Swiss franc, the dollar lost some of its gains from the previous session, which reached 2.15%, marking its biggest daily gain since 2015. However, it kept the Swiss franc close to its lowest level in a week.

According to Carol Kong, a currency analyst at the Commonwealth Bank of Australia, there are new disruptions in the European banking sector and things are still very volatile at present.

Due to the high level of uncertainty and concerns about a wider financial contagion, the dollar and yen are expected to be the main beneficiaries due to the demand for safe havens.

The euro regained some of its losses in early Asian trading as it rose by 0.04% to $1.0582 in the latest trading session, after falling by 1.4% in the previous session.

As for the Pound Sterling, its value rose by 0.18% to reach 1.20775 dollars after experiencing a decrease of approximately 0.9% on Wednesday.

The dollar index, which measures the performance of the US currency against a group of currencies, declined by 0.07% to 104.58 after jumping about 1% in the previous session.

Credit Suisse, which is struggling to recover from a series of scandals that undermined the confidence of investors and clients, is the latest victim of a crisis of confidence following the collapse of US bank, Silicon Valley last week.

The closure of Silicon Valley on Friday and the subsequent collapse of Signal Bank two days later has prompted US President Joe Biden to accelerate his confirmation that the financial system is secure. This has led to emergency measures being taken in the United States to provide additional financing for banks.