The specialization of the SVB in the sector of new technologies and the rapid reaction of the American financial authorities limit the risk of cascading consequences in the banking sector.
Silicon Valley Bank went bankrupt and closed (AFP)
“Calm down, calm down and look at reality!” These are the words launched Monday, March 13 by Bruno Le Maire to investors. The Minister of Economy and Finance, questioned in Brussels on the fall in European banking shares, tried to reassure after the bankruptcy of the American bank Silicon Valley Bank (SVB).
Since the SVB was closed on Friday March 10 by the American authorities, banks have been battered on the stock market. The shares of BNP Paribas and those of Societe Generale plunged by more than 6% on Monday, those of Credit Agricole fell by 3%. So to reassure investors, reassuring statements are multiplying. “I do not see any risk of contagion, so there is no specific alert”, continued Bruno Le Maire on French banks “are not exposed”, also said a spokeswoman for the Banque de France on Monday. Finally, the French Banking Federation (FBF) indicated that it “subscribed” to the statements of the Banque de France and Bercy.
Because the authorities reacted quickly
Priority, put out the fire. Throughout the weekend, the American authorities have multiplied announcements and emergency measures. They assured Silicon Valley Bank customers that they could withdraw all of their money, while deposits were only guaranteed up to $250,000.
The first objective was to avoid a wave of panic on the markets. Because the risk of a “bank run”, that is to say mass withdrawals with potentially devastating effects, hovered. To anticipate and reassure, the Fed – the American central bank – even undertook to lend the necessary funds to other banks which would need them to honor the withdrawal requests of their customers.
Americans can “have confidence” in their banking system, assured US President Joe Biden on Monday, who promised to do everything necessary to keep it “solid”. “We appreciate and take note of the initiative taken by the American authorities to avoid contagion in the United States,” commented Paolo Gentiloni, the European Commissioner for Economic Affairs.
Because the SVB was a specialized bank
A specialized bank, for limited impacts? According to Eric Delannoy, a specialist in the banking sector, the Silicon Valley Bank is not a systemic bank that could drag the entire sector down with it. “There can be no contagion” the SVB is a “regional bank (…) very limited in its spectrum of intervention”. French banking establishments have “very diversified sectors of activity”, explained Bruno Le Maire, unlike the Silicon Valley Bank.
Indeed, the Silicon Valley Bank had specialized in the financing of start-ups, even if it had become the 16th American bank by the size of its assets. According to Eric Delannoy, this specialization in tech limits the impact of its bankruptcy.
“We are very far from 2008 when all the banks were concerned for problems related to the real estate market, relayed by Lehman Brothers, a bank five times larger and which was the world banker.”
His analysis is shared by other specialists. The problems encountered by the bank “are very specific” and are not likely “to affect the entire banking sector, even less the big banks”, abounds Ken Leon, analyst for the firm CFRA, at the microphone of BFMTV.
Because French banks are doing well
The risk is that the bankruptcy of the Silicon Valley Bank generates a movement of panic. Bank customers would then lose confidence and risk all wanting to withdraw their money at the same time. Faced with this risk, the French banking sector has at least one advantage. He has a lot of cash, that is to say sums available immediately. “We have a banking system which is solid” and “a liquidity ratio which is high”, hammered Bruno Le Maire, the Minister of Economy and Finance. The banking sector is doing well, with “profit records” and enough resources to cope, confirms Eric Delannoy.
However, these specificities do not protect European – and French – banks from raising interest rates. “The exposure to changes in central bank decisions remains effectively the same in the United States as in France”, explains Yamina Tadjeddine, professor of economics at the University of Lorraine, The rise in interest rates, which pulls down the value of government bonds held by banks, is “the starting point” of the bankruptcy of the SVB, according to her. In short, on both sides of the Atlantic, if a bank is forced to sell these bonds at the wrong time, it could lose a lot of money.
Because the rules are stricter than in 2008
Since the global economic crisis of 2008, bank regulations and central bank levers of action have evolved. One of the White House’s economic advisers, Cecilia Rouse, pointed out that the sector was “fundamentally different from what it was ten years ago”. “We must not forget what the central banks, between the subprime crisis and today, have become, the rather massive instruments of action that they have developed, their coordination… We are no longer in the world of 2008”, assured the economist Frederic Farah on BFMTV.
Especially since the banking sector is more regulated in Europe, in particular with the application of ratios, for European banks, between financial and banking activities. “As such, we can say that European banks are a little more protected,” explains Yamina Tadjeddine. In the United States, “we had lighter regulations put in place under the Trump presidency”, underlines the professor of economics.