Near-simultaneous banking crises on both sides of the Atlantic testify to a typical catastrophe. Lehman Brothers; Let’s start with America. banking attacks begin suddenly, but usually the causes are long-term.

On the previous Wednesday 8/3, Silicon Valley Bank (SVB), a mid-sized US bank with about $200 billion in deposits (roughly the size of Greece’s GDP), has announced that it has lost about $2 billion selling US Treasury bonds and that Goldman Sachs is in the process of looking for clients to raise its own capital. At first glance, this was not shocking news, but it is usually announced after the capital increase, and not before.

SVB was a bank where many startups and their financiers did business. Over the past 6 months, many of these types of businesses have experienced particular difficulties and have withdrawn several of their deposits. To cover them, the bank sold long-term US Treasuries at a loss of about $2 billion.

On March 8, a group chat with hundreds of startup executives and sponsors discussed the relative weakness of SVB, with some industry “leaders” saying they would “advise their friendly companies to withdraw their deposits” from SVB.

Withdrawals the next day – 09/03 – amounted to more than $50 billion, that is, more than 25% of the total deposits. At the same time, the share price fell by 60%. The bank was closed the next day, and the lines outside were reminiscent of the Varoufakis era in Greece. The US Treasury closed the bank.

At first, the Treasury Department said that only those with “department-guaranteed” deposits of less than $250,000 would receive immediate compensation. But in SVB, only 4% had guaranteed deposits.

After pressure from irate startups (96%) to return only 70% of their deposits, and after a delay of several months, the Biden administration decided to compensate all contributors, regardless of the amount, by calling (after the fact) SVB. system bank. During the 2008 crisis and thereafter, the title was awarded only to much larger banks such as Bank of America, Citibank, JPMorgan-Chase.

What does the collapse of the SVB mean?

• Firstlythat bank managers made huge mistakes that led to losses.
• Secondlythat the bank inspectors of the Ministry of Foreign Affairs, who looked through the books of the SVB every week, did not see obvious problems in time (months ago).
• Thirdlythat when hundreds of customers discuss withdrawals and would-be Silicon Valley leaders urge them to withdraw in a panic, the bank collapses, whatever it is.
• Fourthif your clients are well connected and sponsored by the ruling party, they are lobbying and being compensated with public money, beyond the letter of the law.
• Fifththat the Fed’s astronomically rapid rate hike from zero to over 5% was not without casualties.

What happened to Signature Bank (SB)?

In the Security Council, there were 90% of depositors without a security guarantee. Most of them traded cryptocurrencies, and due to the crisis in the sector, they made many withdrawals, which, like in the case of SVB, led to its collapse and closure by the Ministry of Finance.

In the area of ​​regional banks, there are still a few with a large percentage of non-guaranteed deposits, such as the First Republican Bank (63% of non-guaranteed deposits), which are under particular market pressure and are likely to be either merged or closed by the Ministry of Finance. Thus, there is no general risk of spread from this side.

OUR Credit Suisse

In Europe Credit Suisse is in a long crisis since the Greek financial crisis, ie. over 10 years. It has repeatedly lost large sums, such as the $5.5 billion loss in the bankruptcy of Archegos Capital Management in March 2021.

Its shares have fallen 25% in recent days due to a weak credit position, but rose 20% after the Swiss Central Bank provided a $54 billion bailout. Most likely, he will merge with UBS or another large American or European bank.

The Credit Suisse crisis could intensify in Europe, especially in Italian banks.

Fortunately, the 4 systemic Greek banks, after having managed to sell large percentages of bad loans and receive huge bailouts from the state, are now in a much better position than during the crisis and are unlikely to have problems.

* Mr. Nicholas Economides is a professor at the Stern School of Business at New York University.