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They are consumed by high interest rates

They are consumed by high interest rates

Row of people to cashier bank teller defocused background | Photo: Getty Images

Bankruptcy is a legal process that all companies in the world are exposed to. Typically, companies that declare bankruptcy do so when they prove unable to continue operating, which in most cases is caused by financial problems or high debt.

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When a company declares bankruptcy, its assets are usually liquidated and distributed among creditors or companies that owe it money. It is also distributed to customers or those affected by the decision.

In this sense, in most countries there is a set of legal regulations that allow companies to maneuver their difficult situations before declaring bankruptcy.

In the United States, for example, it is commonly known as Chapter 11 of the Bankruptcy Code. In Colombia, this process is known as business reorganization. In this case, companies take advantage of the law so that, due to force majeure, they can renegotiate debts with their creditors, setting new installments or deadlines.

In recent months, the United States has known devastating news for the business world, as many companies were forced to close their doors, and in the worst-case scenario, liquidate them and close their buildings forever. The delay of the epidemic, combined with high interest rates that remained unchanged in the United States, led to the bankruptcy of thousands of companies.

A famous American bank went bankrupt

That’s Republic First Bank, which was acquired in April of this year and later sold to regional bank Fulton Financial. According to the La Razón portal, three banks faced this same situation last year, and among the main reasons, to which Republic First Bank also responded, were long-term investments financed with very short-term debt, as well as the Federal Reserve. Interest rate increases.

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The Fed’s move brought with it a series of consequences for banks, causing a decline in the net value of their long-term assets, as well as increasing the costs of refinancing their short-term liabilities. Although bankruptcy would leave the bank without a job, the portal emphasizes that this would be relatively small, as it barely has assets of $6,000 million.

The American Regional Bank is one of the most affected banks in recent years and after the pandemic, as interest rates appear to be suffocating entities, generating liquidity problems in the present and future.

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