Interview: U.S. regional bank failures to have multiple impacts, says veteran investor

People queue up outside the headquarters of the Silicon Valley Bank (SVB) in Santa Clara, California, the United States, March 13, 2023. (Photo by Li Jianguo/Xinhua)

Wilfred Daye, a veteran investor, expected the Federal Reserve to delay the hike of interest rates by one to two quarters as the banking sector is weak. He warned that a hike of 50 basis points by the Fed in its upcoming meeting in March would cause systematic shock to the economy and the unrealized losses in the U.S. banking sector would go higher.

NEW YORK, March 15 (Xinhua) -- The recent fall of Silicon Valley Bank (SVB) and Signature Bank would have impacts on U.S. regulation, monetary policy, venture capital firms and start-up companies as well as foreign investors, according to a veteran U.S. investor.

The Federal Deposit Insurance Corporation (FDIC) could raise the ceiling of 250,000 U.S. dollars coverage for each account in case of a bank failure, said Wilfred Daye, chief executive officer and co-founder of Samara Alpha Management, LLC., a New York-based multi-strategy fund of funds and seeding platform.

The limit of 250,000 U.S. dollars coverage per account has been in place for a long time, noted Daye.

Daye expected the Federal Reserve to delay the hike of interest rates by one to two quarters as the banking sector is weak.

Still, the Fed will continue to lift the terminal interest rate to around 5.25 percent as inflation is stubborn, said Daye in a recent interview with Xinhua.

Daye warned that a hike of 50 basis points by the Fed in its upcoming meeting in March would cause systematic shock to the economy in the United States and the unrealized losses in the U.S. banking sector would go higher.

U.S. banks were sitting on 620 billion U.S. dollars of unrealized losses in securities and other assets at the end of 2022 due to the rise of interest rates, according to the FDIC.

The fall of SVB would have some spill-over effects with a few billion U.S. dollars of risk exposure with foreign investors, according to Daye.

European banks could have the same problems facing U.S. counterparts as the European central bank needs to hike rates to tame inflation, said Daye.

Customers wait inside a Signature Bank branch in New York, the United States, March 13, 2023. (Photo by Michael Nagle/Xinhua)

U.S. venture capital firms and start-up companies would suffer from the collapse of SVB as it could take over one month for them to handle their banking account issue, according to Daye.

The fall of SVB and Signature Bank also means opportunities for some investors as the share prices of some banks plunged earlier this week.

A few hedge funds were looking to buy assets of regional banks with strong balance sheets and sound liquidity, according to Daye.

Meanwhile, the money that had been invested in SVB and Signature Bank flowed into Bitcoin and Ethereum and drove up prices.

Signature Bank was taken control by New York State Department of Financial Services on Sunday as a kind of preventive measure, said Daye.

U.S. regulators' actions in regard to SVB and Signature Bank were decisive and right, helping build confidence, said Daye.

If the U.S. federal government doesn't take action, more banks would face troubles, Daye added.

SVB was shut down by U.S. regulators last Friday after the tech-focused lender reported massive losses from securities sales, which triggered a run on the bank's deposits. It marked the second-largest bank failure in U.S. history and was quickly followed by the closure of cryptocurrency sector lender Signature Bank on Sunday.