US and global finance are grappling with the consequences of the collapse of Silicon Valley Bank, the Californian credit institution specialized in deposits of hi-tech companies, but after a difficult start to the morning, with bank stocks plummeting and ending up suspended from Wall Street lists, cautious optimism now seems to be spreading on the other side of the Atlantic. European stock markets are still nervous, and in particular Piazza Affari in Milan, where banks predominate among listed companies and losses at the end of the day exceed 3%, while in the other continental markets the declines travel around two percentage points. However, the situation seems to be under control.
A few tens of minutes after opening lower, the indices of the New York Stock Exchange turned positive. To reassure the markets and remove the risks of contagion were boththe triple, heavy intervention of the US Treasury, which guaranteed the repayment of deposits, the US central bank (Federal Reserve), which postponed the expected rise in interest rates, and the Deposit Guarantee Agency (FDIC), which announced the acquisition of the SVB to auction it, and the words spoken by Joe Biden at the White House an hour before the start of trading.
Americans can "have confidence" in their banking system that is "sound," the president said, the administration will do "whatever it takes" to keep it that way. He also announced that he will ask Congress to legislate to "strengthen" banking regulation, tightened in 2008 after the Lehman Brothers debacle and then eased again during Donald Trump's term, so "as to make this kind of failure less likely to happen again, and protect American jobs." He also argued that executives of troubled banks should be fired: "They knowingly took a risk, when it didn't bear fruit they lost their money."
The priority, in Washington D.C., is to avoid panic in the markets and the "bank run", the rush to withdraw from the bank that could cause great damage. The SVB debacle exposed the fragility of the entire US banking system after the Fed's monetary tightening. Rising interest rates in the U.S. have prompted customers to invest their money in financial products that yield more than checking accounts, draining a source of liquidity for the money-seeking tech sector. The wave of bank withdrawals brought three banks to their knees last week: Silicon Valley Bank, Signature Bank and Silvergate Bank, a smaller bank that operates mainly with cryptocurrencies.
In Germany, banking supervisor Bafin assured that the bankruptcy of SVB is not "a threat to the financial stability" of the country. In France, Economy Minister Bruno Le Maire said he saw no "risk of contagion." In Italy, Giancarlo Giorgetti, Minister of Economy and Finance, "is closely following developments in the events related to Silicon Valley Bank and the decisions taken by the American monetary authorities. The Italian and European banking system is regularly monitored by the supervisory and supervisory authorities, thus ensuring its stability"
The European Commissioner for the Economy, Paolo Gentiloni, reassured: "We do not see a specific risk of contagion, obviously we are monitoring the situation in close contact with the European Central Bank, we appreciate and take note of the initiatives taken by the American authorities to avoid contagion in the USA. We stress that all European banks, not just the largest, are applying the Basel prudential standards."
Agence France Presse interviewed several international analysts and obtained a picture of substantial confidence. "We are not in the situation of 2008, it is a much more limited crisis," according to Eric Dor, director of economic studies at the Iéseg business school, who adds: "Initially the American authorities were reluctant to intervene and save the banks," he added, "then reality came into play and they were still forced to do something." For Lionel Melka, partner of the investment company Swanna, "the situation will calm down", also thanks to the moves of US institutions. "The guarantees provided by the Fed are important, and they have opened a window to provide additional liquidity," said Alexandre Baradez, an analyst at IG France. Today's report also expects fintech firm Ebury to "return to calm" among US regional bank depositors and currency markets will return to focus on inflation data and central bank monetary policies.
Small US banks would therefore seem to be safe, but many will no longer swim in calm waters and will be more reluctant to lend. A credit crunch could trigger a recession in the US economy. What about Europe? Much depends on what the ECB decides this Thursday. Markets are still expecting interest rates to rise by half a percentage point, but it is not a foregone conclusion that the ECB will continue on this path in May and June.