The message of tranquility that the President of the United States, Joe Bidento the markets yesterday, about the solidity of the banking system in that country, did not force the fear of thousands of savers and investors who fear that with the bankruptcy of Silicon Valley Bank (SVB) and the difficulties faced by Signature Bank, the First Republic Bank and the Western Alliance, the story lived 14 years ago may be repeating itself with the bankruptcy of entities such as Lehman Brothers, among others.
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“Americans can trust that the banking system is secure. Your deposits will be there (available) when you need them,” Biden said in televised remarks from the White House after the bankruptcy of the Silicon Valley Bank (SVB)).
However, the anguish of one and the other infected the world’s stock markets, many of which closed with red numbers in their first session of the week, fearing contagion from that banking crisis.
The European markets, which obtained the day almost in balance after the announcement of exceptional measures, ended with sharp falls. The Paris Stock Exchange it closed with a recovery of 2.9 percent and the Frankfurt Dax of 3.04 percent.
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In London, yesterday’s loss was 2.58 percent at the close, while that of Milan ended with a fall of 4.03 percent. For its part, the Madrid parquet ended the session in red, marking a negative close of 3.51 percent.
In Asia, the Tokyo Stock Exchange lost 1.11 percent, while in New York, the Dow fell just 0.28 percent. In Colombia, for its part, the decrease was 2.8 percent.
Despite being a bank little known to the general public, the SVB specialized in financing start-ups, it had become the 16th largest bank in the United States by assets with about 209,000 million dollars in assets and about 175,400 million in deposit at the end of 2022.
For now, there are three banks that have fallen due to massive withdrawals of deposits, in a context of increased aggression in interest rates by the Federal Reserve (Fed) to contain inflation: the SVB, the Signature Bank and the Silvergate Bank, the last two highly exposed to cryptocurrencies.
This circumstance could lead the Fed to pause its rate adjustment to contain inflation at its March meeting.
“We think that monetary policy officials will be alert. It is possible that the Fed will pause (on rate hikes) in March and think there will be more effects in the banking sector,» said Daniel Ivascyn, chief investment officer at Pacific Investment Management Co.
On Sunday night, US federal authorities intervened to ensure savers had access to their funds at SVB and took over the Signature bank. But there are more US banks under pressure. Shares of San Francisco-based First Republic Bank plunged nearly 62 percent on Monday.
Far from the 2008 crisis
Most financial market watchers are, however, optimistic and doubt that there will be a European crisis comparable to the 2008 financial crisis. Everyone is looking forward to Thursday, when the Central Bank meets to likely raise benchmark rates.
Biden is a supporter of ‘immediate’ reaction. In a joint statement, the Fed, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department assured on Sunday that depositors of SVB and Signature Bank will have access to “all their money” starting yesterday Monday.
According to President Biden, the Government will do everything possible for savers to recover their money and, in any case, «taxpayers will not take responsibility for the losses.» And he insists that he wants to strengthen the regulations of the sector. “I am going to ask Congress and banking regulators to tighten the rules for banks so that this type of bank failure is more unlikely to happen again,” he explained, blaming Republicans for bringing down President Donald Trump. donald trump safeguards scrapped after the 2008 financial crash.
For now, the Fed announced that it will investigate the conditions of supervision and regulation of the SVB because the facts «require an in-depth, transparent and rapid analysis,» declared the president of the agency, Jerome Powell.
The results will be known on May 1. The Democratic president wants those responsible for the bankruptcy «to account,» which is why over the weekend he prevented a bank bailout and favored firing the bank’s management.
Biden stressed that investors who bought SVB (the British HSBC) took a risk and must bear the consequences because “this is how capitalism works”.
French and German authorities, meanwhile, see no risks to their financial systems. «There is no direct contagion and the possibility of an indirect impact is something that we must monitor, but at the moment we do not see a significant risk,» said the European Commissioner for the Economy, Paolo Gentiloni, in Brussels.
*With information from agencies