Bankruptcy of SVB bank: what risks of contagion?

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The SVB bank was no longer able to cope with the massive withdrawals of its customers, mainly technology players.

Will the closure of Silicon Valley Bank (SVB), the biggest bank failure in the United States since the 2008 financial crisis, spread? Financial analysts interviewed by AFP on Monday remain rather optimistic for the moment because of the measures taken by the American authorities, but the markets are worried.

We are not in the same situation, it is much more circumscribed, with a certain type of bank and a clientele from a certain sector [regional banks working a lot with the technological sector, Ed. ], tells AFP Eric Dor, director of economic studies at the IESEG business school.

SVB remains a rather special case, adds Lionel Melka, partner of the investment company Swann: according to him, the trend may have been accentuated by the suddenness of the bankruptcy, but it will calm down and the banking crisis is already circumscribed. by the measures of the American authorities.

The latter have announced a series of measures to reassure the solidity of the American banking system and will in particular guarantee all the deposits of the bankrupt bank. The US central bank (Fed) has also agreed to lend the necessary funds to other banks that need them to honor their customers' withdrawal requests.

In the short term, there will be two things to watch: if the actions of the authorities succeed in maintaining (or restoring) confidence in the American banking system, and if there are other institutions with similar vulnerabilities. to SVB lurking in the shadows, in the United States or in other economies, tempers Neil Shearing, principal economist of Capital Economics, in a note.

Same story with Paul Dales, chief economist of Capital Economics, who sees reassuring elements in the way other banks are regulated or have passed stress tests, but warns of the risk that other banks find themselves in difficulty if people withdraw funds and this leads to a greater loss of confidence that would be difficult to recover from.

Shares in the global banking sector suffered on Monday, plagued by contagion risks. European stock markets closed sharply in the red, but Wall Street raised the bar in the afternoon.

The US central bank's forced monetary tightening has participated in weakening commercial banks and slowing economic activity. It has encouraged customers to invest their money in financial products that pay better than current accounts, and has disrupted the cash-hungry new technology sector by increasing the cost of borrowing.

“As always, it is an increase in interest rates by the Fed that reveals the fragilities of the system.

— Eric Dor, Director of Economic Studies at IESEG Business School

The sharp rise in rates over the past year has also exposed post-COVID excesses which are being corrected, especially for players who have mismanaged their positions in the new financial environment, adds Alexandre Baradez, analyst at IG France.

After the announcement of the takeover of SVB by the Deposit Guarantee Agency (FDIC) on Friday, many had worried about the fate of deposits blocked by the failure of the institution. Some 96% of them were indeed not covered by the traditional deposit guarantee.

The guarantees provided by the Fed are important, and it opened a window to provide additional liquidity, highlights Alexandre Baradez, an analyst at IG France.

Paul Dales (Capital Economics) estimates that the cost of Fed support will be ultimately paid by banks contributing to the FDIC, and who may ultimately pass it on to their customers. But I think it would be wrong to say that it is the taxpayers who pay.

On the other hand, the shareholders of SVB and Signature Bank, which also went bankrupt, are going all lose, a Fed official said over the weekend.

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