Its collapse still causes tectonic tremors in the markets. American Silicon Valley Bank (SVB), which has funded tech start-ups, collapsed last Thursday in a cut-throat proceeding that took two other U.S. banks with it. European stock markets retreated yesterday, with European bank stocks recording the biggest drop, despite active interventions by first the US authorities, then the British, and then the German authorities. From the European side, assessments, including those of the Commission, agree that eurozone banks are not at risk. However, reflecting investors’ concerns, the index that tracks banking stocks posted losses of 5.9% since the first hours of the session. Shares of European banking giants such as Credit Suisse and Commerzbank fell from 8% to more than 9%, Societe Generale and Unicredit from 5% to 6%, and Barclays fell 4%.

Investors are concerned

Understandably, investors remain concerned about the risks that banks may be hiding on their balance sheets, although the US authorities were quick to provide sufficient liquidity to the banking system and ensure depositors that they will have full access to their funds from yesterday morning. . OUR Federal Reserve And United States Deposit Insurance Corporation (FDIC) announced a new liquidity facility that would immediately make annual loans available to banks at clearly better-than-usual terms. It is providing $25 billion in capital to the US banking system to prevent the crisis from spreading to the wider financial system and to reassure bank customers that their deposits are safe. And this is precisely what US Treasury Secretary Janet Yellen and the US President himself emphasized, that by providing liquidity, depositors are guaranteed access to their money.

The Federal Reserve and the Deposit Insurance Administration are giving US banks $25 billion to avoid domino bankruptcies.

In the context of the same effort, because the American authorities closed it Signature Bank, which had similar problems with SVB and gave the same guarantees to its contributors. But Signature Bank became the third U.S. bank to collapse in just a week, as SVB preceded Silvergate, which lent money to crypto companies. Last Wednesday, the said bank announced that it was suspending its operations and liquidating its assets. It should be noted that since Friday, the FDIC has taken control of SVB, which means that it has control over almost $175 billion in deposits. At the same time, the source of concern is the fact that deposits up to $250,000 are Silicon Valley Bank has a large number of accounts that exceed this limit and are not insured, many of them owned by small businesses. However, factors in the sector are interpreting Ms. Yellen’s encouraging remarks as a promise that large fields will also be protected. Meanwhile, another U.S. bank, First Republic Bank, appears to be facing the same fate as SVB: its shares plunged 60% yesterday despite persistent efforts to reassure investors that it has more than $70 billion in liquidity. .His assurances were not confirmed. convince its investors, many of whom have turned to US and German government bond havens.

Mobilization to protect the wider financial system has also taken place in the UK, where Prime Minister Rishi Sunak, finance minister, Jeremy Hunt, Mayor of the City of London Andrew Griffiths and Governor of the Bank of England Andrew Bailey during overnight talks about the fate of the SVB subsidiary in the UK. The solution was provided by the British bank HSBC, which committed to buy a British unit of SVB for a symbolic amount of one pound sterling. And, according to market analysts, thus averted a crisis in the country’s technology sector, since the American bank mainly financed technology startups. The British government is also providing a plan to support companies with deposits in SVB, as the number of bank customers in the UK is at least 3,300 people, including technology start-ups, investment companies and companies financed by investment funds. In Germany, finally, the Bundesbank convened a financial crisis committee, set up at the height of the 2008 global financial crisis, to assess the possible implications for German banks and the German financial market. Meanwhile, Germany’s financial regulator BaFin, which controls German banks jointly with the Bundesbank, said it had imposed a moratorium on SVB’s German subsidiary.

Message

To reassure savers, US President Joe Biden stressed yesterday that “Americans can have confidence in the security of the United States banking system.”

guarantee

In announcing the acquisition of SVB by HSBC, UK Chancellor Jeremy Hunt emphasized that “we will take care of our technology sector and we have worked hard to deliver on that promise.”

Trump’s deregulation has increased the risk

In 2018, a decade after the global financial crisis nearly brought the global financial system to its knees, then-US President Donald Trump signed into law the Growth, Deregulation and Consumer Protection Act. In this way, mid-sized companies such as Silicon Valley Bank have been exempted from the strict rules that were put in place after the crisis, and therefore from the cost of complying with those strict rules. “The logic of one rule doesn’t work for everyone,” Trump said at the White House at the time, boasting about the repeal of rules that “harmed” companies. “They should not be subject to the same rules as large financial groups, and precisely because they suffered from this, they began one after another to cease their activities,” the ex-president stressed. About fifteen Democratic senators joined the Republicans in supporting the measure.

Five years later, three regional banks, including SVB, have gone bankrupt in recent days, and many believe their collapse was caused by regulatory easing sought by then-SVB chief executive Greg Becker. To reassure markets and consumers, President Biden stressed yesterday that the US financial system is on a sound footing and vowed to pressure Congress to strengthen the banking sector’s regulatory framework. He vowed to push regulators “to tighten banking regulations to reduce the chance of a repeat of the same banking crisis and to protect American jobs and small businesses.

Financial institutions the size of SVB, Signature and Silvergate Capital pale in comparison to the giants of Wall Street. However, in general, they have shown rapid growth and today have assets worth trillions of dollars. They play a critical role in the American economy as they provide funding for a wide range of industries, from wineries to tech start-ups. The major banks are trying to attribute the success of these regional banks over the past decade to a lack of regulation. They even argue that instead of imposing stricter rules on Wall Street giants, regulators should care more about the smaller companies they have ignored in recent years. Some executives even cite Fed Vice Chairman Michael Barr as saying last week that regulators have been “a bit flippant” about small banks. Roughly speaking, before its collapse, Silicon Valley Bank was the 16th largest bank in the US and cannot be considered a small bank.

In face-to-face conversations with officials, major bank executives blame the Fed, the Comptroller’s Office and the Association of Deposit Insurance Authorities for their 2019 decision to allow banks with less than $700 billion in assets. dollars in order not to disclose the details of their income when disclosing information to regulators. This decision made it easier for many small financial institutions to take on the investment risk of the bonds they held in their portfolios.

This prompted SVB to make a bold choice. At the end of 2020, the company’s internal correspondence shows that it was advised to buy short-term bonds as they raised more capital. This change will reduce the risk of large losses in the event of a sharp increase in interest rates. But it will come at a price, namely an $18 million cut in the company’s revenue. The company decided to continue investing in high yield assets. The result was a record 52% earnings jump in 2021 and a market capitalization of over $40 billion. But by the time interest rates rise in 2022, the company will face more than $16 billion in losses that have yet to be reflected in its results.