Silicon Valley Bank: how the American start-up bank was sunk

After the failure of the Silicon Valley Bank, the U.S. President assured, Monday, that the U.S. banking system is “solid”. Joe Biden also maintained that taxpayers will not be responsible for the losses, and called on Congress to “strengthen” the regulation of the sector. The American banking institutions, for their part, announced that they were going to allow customers to withdraw all of their deposits. An unusual decision.

The stress reaches the markets. European stock markets are falling sharply on Monday, driven by renewed concerns about the risk of contagion in the global banking sector after bankruptcies in the United States in recent days.

The European markets opened close to balance after the announcement of exceptional measures of the U.S. markets but then fell: Paris fell by 2.33%, Frankfurt by 2.41%, after having lost more than 3%, and London by 2.01% to 09:50 GMT (10:50 in Paris). Milan even fell by 4.18%.

In Asia, the Tokyo Stock Exchange lost 1.11% but Shanghai gained 1.20% and Hong Kong 1.95%. “We had forgotten how much the banking system relies on trust,” said Lionel Melka, partner at Swann Capital.

Confidence in U.S. regional banks appears to be shattered after three failures in recent days, including Silicon Valley Bank. “Only the big banks seem safe,” he says.

Measures in the United States

Confidence in U.S. regional banks appears to be shattered after three failures in recent days, including Silicon Valley Bank. “Only the big banks seem safe,” he says.
U.S. authorities took several steps over the weekend to try to stem the tide of mistrust in the U.S. banking system and avoid massive deposit withdrawals that could further weaken these institutions.

Among the measures announced on Sunday, the authorities will guarantee the withdrawal of all the deposits of the bankrupt Silicon Valley Bank (SVB).

The U.S. Federal Reserve (Fed) has also pledged to lend the necessary funds to other banks that would need them to honor their customers’ withdrawal requests. “This is not a federal bailout, but it provides guarantees” to allow “to find buyers quickly”, explains Alexandre Baradez, an analyst at IG. He underlines the existence of “a stress phase” on the markets even if the situation remains, according to him, far from 2007.

In torment on Friday, European banks fell again on Monday, with an even more marked movement for banks perceived as less solid: Credit Suisse 9.90% hit a new historic low and Commerzbank fell 12% while BNP Paribas dropped 5.29% and Société Générale 5%.HSBC, qui perdait 3,58 %, a annoncé lundi matin racheter la branche britannique de Silicon Valley Bank pour une livre, ce qui permet aux clients d’« accéder à leurs dépôts et leurs services bancaires normalement ».

Weakened banks

This crisis in the banking sector “changes the game on the Fed’s expectations”, underlines Ipek Ozkardeskaya, of Swissquote Bank. The brutal increases in interest rates over the past year in order to fight inflation have contributed to weakening banks and slowing economic activity.

The latest events could convince US central bankers to slow down at their next meeting on March 21 and 22. While most investors were considering a return to a sharp 0.5 percentage point rate hike, this option now seems to have been ruled out.

Sovereign rates were falling in the bond market on Monday. The interest rate for the U.S. 10-year bond was 3.50 percent, down from 3.70 percent at the close Friday, while the German rate for the same maturity was trading at 2.21 percent, down from 2.50 percent at the close Friday. The dollar was retreating against other currencies: the euro was taking back 0.27% to 1.0672 dollars and the pound 0.45% to 1.2085 dollars around 10:45. The bitcoin rebounded by 2.43% to 22,010 dollars, erasing much of the losses that followed the announcement of the difficulties of SVB.

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