The Hindu Editorial Vocabulary– Mar 16, 2023; Day 410

Difficult Word/ PhraseContextual Sense
Contagion The communication of an attitude or emotional state among a number of people
Déjà vuThe experience of thinking that a new situation had occurred before
Redux Brought back
Make a beeline for hurry directly to
Haven A shelter serving as a place of safety or sanctuary
Alacrity Liveliness and eagerness
Bolster Support and strengthen
In concert with Acting jointly
Resilient Recovering readily from adversity, depression, or the like
Glean Learn a little information, esp. with difficulty or in small pieces
Distress A state of adversity (danger, affliction or need)
A run on a situation in which a lot of people want to buy something at the same time
Can’t see the wood for the trees to be unable to understand a situation clearly because you are too involved in it
Predicate Affirm or declare as an attribute or quality of
Countercyclical Against the economic cycle
On guard careful and looking out for danger

Lessons learnt: On the Silicon Valley Bank episode

The Reserve Bank of India should ensure banks are protected from global contagion (The communication of an attitude or emotional state among a number of people) and mismanagement

A faltering bank, this time on the U.S. West Coast, sparked a déjà vu (The experience of thinking that a new situation had occurred before) moment across global markets last week as fears of a Lehman redux (Brought back) triggered sharp declines in banking stocks worldwide and saw investors make a beeline for safe haven (A shelter serving as a place of safety or sanctuary) assets such as gold. However, over the course of four days from Friday, regulators in the world’s largest economy acted with alacrity (Liveliness and eagerness) to bolster (Support and strengthen) public confidence in the banking system. The Federal Deposit Insurance Corporation (FDIC) first took over the Silicon Valley Bank in California, and on Sunday took control of New York-based Signature Bank and in concert with (Acting jointly) the Federal Reserve and the Treasury Department announced that depositors in both the banks would be repaid in full. Shareholders of the two banks would, however, not be protected, regulators said. On Monday, U.S. President Joe Biden sought to reassure the nation and global markets that the U.S. was committed to maintaining a resilient (Recovering readily from adversity, depression, or the like) banking system, and would move to simultaneously tighten regulations for banks to make it less likely for such failures to occur again. While the coordinated steps have, at least for now, restored a degree of calm in most markets, there are lessons that have been learnt and others that could, perhaps, be gleaned (Learn a little information, esp. with difficulty or in small pieces) over time.

Silicon Valley Bank’s case is fairly unique. With the depositor base comprising start-ups and venture capitalists, mostly from the tech hub of Silicon Valley, the customers were geographically and sectorally concentrated. The bank had also invested extensively in a portfolio of U.S. Treasuries and mortgage bonds, which had as a result of the recent sharp interest rate increases by an inflation-battling central bank accumulated unrealised losses that became too costly to liquidate in a distress (A state of adversity (danger, affliction or need)) situation. Signature, on the other hand, had exposed itself to highly volatile cryptocurrencies by providing services to those investing in digital assets. That, along with a run on (a situation in which a lot of people want to buy something at the same time) deposits, ultimately proved to be its undoing. Blaming the Fed’s monetary tightening as the proximate cause for the bank failures is a case of being unable to see the wood for the trees (to be unable to understand a situation clearly because you are too involved in it). Interest rates move in cycles and all banking is fundamentally predicated (Affirm or declare as an attribute or quality of) on managing the risks associated with interest rate moves as well as ensuring that the deposits banks accept to fund lending are always reasonably matched with income or holdings that could be used to meet withdrawals. The Reserve Bank of India’s guidelines of 2018 advising banks to create an Investment Fluctuation Reserve is just the kind of countercyclical (Against the economic cycle) tool that has relatively insulated Indian lenders from interest rate risks. Still, the RBI must remain on guard (careful and looking out for danger) to ensure neither global contagion nor management missteps threaten any local lender.

Want to improve your vocabulary further? Download the Lists of Word-Meanings of Previous Months here.

Nikunj Barnwal

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