This brief is largely driven by the collapse of Valley Silicon Bank, which has caused ripples and possible contagion effects. It is very good that the American authorities quickly intervened and confirmed the commitment to guarantee deposits up to 250,000 US dollars. But most of the deposits from SVB (more than 90%) were not guaranteed.

However, there are indications that the federal government will try to compensate uninsured depositors. Many will comment on this episode, which once again shows the interconnectedness of financial markets and numerous instabilities. The following lines emphasize two aspects that at least partially explain why the SVB case was written on the wall… as the Americans say.

First, it is still about the underregulation of the financial system, especially the shadow banking sector (non-banks that carry out credit operations), which is unclear. Large funds have migrated to unregulated areas, and the inaction of regulators in this regard is inexplicable, although this situation has been reported in ECB and IMF documents for years. Fed, Bank of England, ESMA, etc. There was also an episode in February with pension funds in the UK that invested in gilts (government bonds) and suffered significant losses in their portfolios due to market recalculation. And the Bank of England stepped in to calm the waters.

And in SVB, the market valuation of the placement of bonds meant significant losses, which caused the withdrawal of deposits and a liquidity crisis. Not only are parts of the financial system underregulated, but in recent years there has been a lot of pressure to loosen the regulatory framework put in place after the financial crisis. Credit standards are probably not strict enough either

Unregulated is the cryptosphere, in which Signature Bank of New York is deeply involved. It amazes you when you read that the bank is great at financing companies in the cryptosphere; it’s like financing gambling, Ponzi schemes. And the control bodies seem to have closed their eyes.

The second aspect to emphasize is the tightening of monetary policy in 2022, to fight inflation, to calm inflationary expectations. What is currently happening in the financial markets of the USA and even Europe (if we talk about the episode in Great Britain) clearly shows that price stability cannot be separated from financial stability.

Rapid and decisive tightening of monetary policy cannot be done blindly without seeing what is happening to a financial system in which many entities have high levels of debt. And when “mark to market” works relentlessly, a lot of damage can happen, the effects of panic can easily spread.

Regulators should not allow high leverage in the financial system. Risks taken at the individual, company level can easily become systemic risks through contagion.

The moral is twofold: 1/ regulation must be adequate (strict), cover all sectors of the financial market, high leverage cannot be allowed; 2/ monetary policy cannot have a single goal in such a complex environment with so many instabilities.

It should be welcomed that many banks, including in Romania, are well capitalized and have high liquidity. And it is good that the shadow banking sector is not developed in Romania.

PS. The Fed is unlikely to raise its key rate by 50 basis points at its next monetary policy meeting, which some voices favor