New Players in the Financial Sector and the Impact of Bond Holdings

The financial sector saw new players, some of which lacked a diverse bond portfolio. These new players were hit hard when bond values dropped. When the government runs a deficit, it sells bonds to maintain a positive balance. Banks benefited from this arrangement, earning income from the bonds. However, as interest rates increased, the value of old bonds dropped. Most banks sold their bonds to non-bank financial institutions, minimizing their losses. However, SBB, a conservative bank reliant on deposits, suffered and was one of the first to go under.

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