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China brokers Saudi-Iran reconciliation, prompting concern from former Director of National Intelligence
Saudi Arabia and Iran have agreed to resume diplomatic relations, which were suspended for seven years, following talks brokered by China. The deal includes reopening embassies and missions within two months, activating a security cooperation agreement, and strengthening agreements on trade, economy, and investment. Former Director of National Intelligence John Ratcliffe has criticized the agreement, calling it a “terrible development” that will leave China and Iran stronger, and the US and Israel weaker, making the Middle East more vulnerable. Ratcliffe said that President Biden’s foreign policy is putting American national security at risk and that he wants China to be seen as a friendly competitor, despite clear intelligence that shows otherwise.
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FINANCIAL TIMES — SVB collapse forces rethink on interest rates and hits bank stocks
The failure of Silicon Valley Bank has caused a global market upheaval, with investors revising their interest rate projections and selling bank stocks around the world. Government bond prices rose as fund managers bet that the Federal Reserve would keep interest rates unchanged at its next scheduled monetary policy meeting, after last week's takeover of SVB and the withdrawal of funds by customers. Bank stocks fell as investors worried about other potential institutions coming under strain, with shares in First Republic dropping and the KBW banks index, which includes larger US lenders, falling by 11.7%. Europe's Stoxx banks index also fell by 6.7%, with all 22 stocks in the index in negative territory. The collapse of SVB highlighted the risks in the financial system as central banks rapidly lift borrowing costs, and investors and analysts believe policymakers will need to be cautious as they try to control inflation. The Fed is expected to ease off its campaign to raise interest rates, after weeks of debate over whether it will opt for a 0.5 or 0.25 percentage point increase after its meeting later this month.
The recent banking crisis in the United States had multiple causes, one of which was the 2018 decision to ease rules that apply to big-but-not-quite-mega-banks. The supporters of this decision included officials such as Federal Reserve Chair Jay Powell, while some of Powell's colleagues, including governor Lael Brainard and Martin Gruenberg, opposed it. The Dodd-Frank Act, passed after the 2008 crisis, had imposed rules to prevent bank failures, but the 2018 decision was aimed at avoiding a one-size-fits-all approach that was considered to be strangling smaller lenders. However, critics argued that the new rules increased the risk of bank runs. After the weekend's intervention, regulators may roll back some of their light-touch approach, but it is unlikely that Congress will agree on new regulation. Rolling back the rollback might benefit large banks that can afford to handle a regulatory burden, but rules for big banks may also become tougher. President Joe Biden reassured Americans that the country's banking system is safe after the recent bank failures, and called for tougher rules to keep banks in line.
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