In a single week, three U.S. banks sank. Namely Silicon Valley Bank (SVB), the bank of Californian start-ups, Signature Bank, 21st American bank, but also Silvergate Bank, smaller but known for its privileged links with the world of cryptocurrencies. Here's what you need to know about this case that threatens the global economy

How did we get here?

The Federal Reserve's (Fed) monetary tightening, via a rate hike, has put banks' margins under pressure, encouraged customers to invest their money in financial products that pay better than current accounts and has shaken up the cash-hungry new technology sector. The ensuing wave of withdrawals caused the failure of all three banks. SVB's deposits amounted to around $170 billion, according to a document released Wednesday by the institution, but colossal withdrawals have occurred since then. "Many depositors are small businesses that need access to their funds to pay their bills and they employ tens of thousands of people" in the United States, said Janet Yellen, the Secretary of the Treasury, Sunday, on CBS.

Why is this worrying?

In addition to the stability of the banking system, many expressed concern about the impact of SVB's failure on the technology sector, both in the US and beyond. SVB prided itself on having "nearly half" of U.S.-backed technology and life sciences companies as customers. As a result, European stock markets continued to fall on Monday, experiencing their worst session of the year. Around 9:40 GMT, Paris was down 2.95%, Frankfurt 3.12%, London 2.43% and Milan 4.60%. Among banks, BNP Paribas fell by 6.06%, Santander by 7.37%, ING by 8.30% and Commerzbank by 12.02%.

What are the US authorities doing?

They announced on Sunday a series of measures to reassure everyone and will in particular guarantee the withdrawal of all deposits of SVB and Signature Bank. The Federal Reserve (Fed) – the US central bank – has also pledged to lend the necessary funds to other banks that would need them to meet their customers' withdrawal requests. These measures were taken jointly by Treasury Secretary Janet Yellen, the Fed and the Deposit Insurance Agency (FDIC), after consultation with US President Joe Biden.

"Today, we are taking decisive action to protect the U.S. economy by strengthening confidence in our banking system," the Fed, Treasury and FDIC said in their statement. "This initiative will allow the U.S. banking system to continue to play its vital role in protecting deposits and providing access to credit for households and businesses," they said.

But this support will not be free because Joe Biden said in a statement that he was "firmly committed to holding accountable those responsible for this mess". In fact, the solution announced Sunday protects depositors but "the investors [shareholders] of these two banks (SVB and Signature Bank) will lose everything" and their leaders will be replaced, said a Fed official.

And in Europe?

European leaders wanted to be as reassuring as possible, like Bruno Le Maire, who said he did not see "a risk of contagion, so there is no specific alert". "We have banks that are solid", "a banking system that is solid" and "a liquidity ratio that is high", said the Minister of the Economy, adding that French banking institutions had "very diversified sectors of activity".

The same is true in Germany, where the bankruptcy of the SVB bank does not pose "a threat to financial stability" in Germany, assured banking supervisor Bafin, because it is "not systemically important".

What does the future hold for SVB?

The US authorities have auctioned SVB with the aim of finding a buyer as soon as possible. The British subsidiary has already been acquired by HSBC for a symbolic pound. "Silicon Valley Bank (UK) was sold today to HSBC. [...] SVB UK customers will be able to access their deposits and banking services normally from today," the US Treasury said.

The British financial authorities acted urgently all weekend after the announcement of the bankruptcy of SVB to reassure the markets and try to limit the damage for the technology sector for which this bankruptcy filing poses a "serious risk", admitted the Minister of Finance Jeremy Hunt.

  • Economy
  • Joe Biden
  • Bank
  • EDF
  • Silicon valley
  • Bruno Le Maire
  • Bankruptcy