The negative conjuncture, composed of disparate factors, has shifted the crisis from a small US start-up bank to the broader US banking industry, and since yesterday even to European banks, and led to a concerted decline in bank stocks. These are, on the one hand, the difficulties faced by technology startups in previous months, and, on the other hand, the losses caused to banks last year by falling bond prices amid rising interest rates. These two factors caused a liquidity crisis in the small US bank Silicon Valley Bank (SVB), whose actions, however, raised concerns among investors. Thus, the European banking stock price index showed the worst session since yesterday’s June: the German giant Deutsche Bank fell more than 8%, while Societe Generale, HSBC, ING Groep and Commerzbank recorded losses of more than 5%.

Faced with losses in its portfolio due to the plight of startups and subsequent deposit cuts, Silicon Valley Bank was forced to sell $21 billion worth of shares to raise capital and cover significant losses in its portfolio. The news, however, prompted an immediate reaction from some investors such as Founders Fund, Coatue Management and Union Square Ventures, who rushed to cut their risks and withdraw their funds from the wintering bank. This was followed by a free fall in SVB shares, which lost 60% of their value in Thursday’s session, while the value of its bonds also fell significantly. But the turmoil that gripped the banking industry and drove banks into decline is at least partly due to a coincidence: the SVB crisis coincided with the Silvergate Capital Corp crisis, causing two parallel banking crises to inspire anxiety among investors and bring down at least 5% of the stocks of the largest US banks. such as Bank of America, Wells Fargo, Citigroup and JPMorgan Chase. These four major banks lost a combined $52.4 billion of market value, while the KBW global banking index fell more than 7%, the most since June 2020.

Investors began to worry about potential problems with the portfolios of other US banks, and in particular about the risks associated with their extensive holdings in bonds. This is due to the fact that during the pandemic and quarantine, many large banks have accumulated an unusually large number of deposits and placed them in long-term US government bonds. However, the value of these bonds has fallen significantly over the past year due to significant increases in interest rates. After all, a few days ago, data from the Federal Deposit Insurance Administration was released, showing that US banks have losses of about $620 billion in their portfolios.

Bank of America, Wells Fargo, Citigroup and JPMorgan Chase lost a combined market value of $52.4 billion.

Meanwhile, the decline coincided with a drop in bank deposits as savers sought higher returns as the US Federal Reserve continued to raise interest rates. According to industry analysts, the worst-case scenario that banks could face from now on will be that they will be forced to follow the example of the SVB and, in order to cover the reduction in their deposits, sell bonds at reduced prices and fix losses. According to Christopher Whalen of Whalen Global Advisors, this will not hurt the solvency of most financial systems. “The problem will mainly be those banks that have a very large stake in US government bonds,” he emphasizes and concludes: “They were caught by surprise, no one expected such a prolonged high inflation,” inflation that would dictate such high interest rates. speed increases. Similarly, economist and investor Mohamed El Erian believes that SVB risk can be easily contained with careful management because the US banking system is strong as a whole, even if this does not apply to each bank individually.

However, not everyone shares his optimism. Nick Wilson, chief analyst at Markets.com, is concerned that developments in the SVB could act as a fuse that blows banks amid risks associated with rising interest rates and a “fragile” US economy. And for James Athey, chief investment officer at Abrdn, “the problem with the system is the levels of leverage.” As he explains, “monetary policy has been extremely expansionary and leveraged for far too long.”