The sudden collapse of Silicon Valley Bank was driven in part by assets that lost value when interest rates rose from near zero. Higher rates will continue to weigh on banks’ balance sheets. They will also cause problems in other parts of the economy.
Banks lost money on securities sensitive to interest rates such as Treasurys and mortgage-backed securities. Those losses will grow if rates keep going higher. If, as the Federal Reserve hopes, those rates slow the economy to ease inflation, the banks could face other losses. One risk is commercial real estate, where owners of half-empty office buildings might struggle to pay their debts. That would hurt commercial mortgage-backed securities, which are already declining in price.
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