The President of the United States, Joe Biden, appeared before the nation yesterday and began his speech with this phrase: "Americans can be confident that the banking system is safe." Biden was forced to include this appearance in his agenda, before embarking on a trip to California, for fear that the federal takeover of Silicon Valley Bank, on Friday, and of Signature Bank on Sunday, will be the origin of an effect dominoes and a financial crisis like the one in 2008.
The president tried to calm things down, once the stock markets began to show their nervousness, like the account holders in those institutions and in others. “The deposits will be there when small businesses across the country need them, and the banks will have the ability to deliver the money, pay the employees and settle the bills,” he stressed.
"In the first place, customers who have deposits in these banks (the two intervened) have the guarantee that their accounts will be protected and that today they will have access to their money," he said. "And we repeat an important point, no loss will be borne by taxpayers," he stressed. “The money will come from the commissions that banks pay to the FDIC (Federal Deposit Insurance Corporation),” he clarified. But he wanted to send a message to the investors of these institutions: “They are not protected. They knew they were taking a risk and when it doesn't work out, you lose your money. This is how capitalism works,” he stressed.
His words had a soothing effect on Wall Street. Both the Dow Jones and the Nasdaq remained positive for much of the afternoon, always flirting with losses. Wall Street closed with a decrease of 90 points, 0.25%.
A completely different scenario was the one experienced in Europe, where the Ibex lost 3.51%, the worst session in nine months. It lost 9,000 points, weighed down by the bank collapse: all the entities recorded setbacks of more than 6%. Other European places were even worse, with Milan and London losing 4% and the European banking index falling almost 7%. Between last Friday and Monday, Spanish entities have left 16,800 million in market capitalization.
The Federal Reserve announced that it will deploy an emergency loan program, with the approval of the Treasury Department, to inject money into the most vulnerable banks and help guarantee that they have enough money to meet the needs of depositors. The regional banks are the ones that suffer the blow most directly. First Republic Banc and Western Alliance Bancorporation fell more than 50%.
The intervention of a bank that in 30 years has always made a profit has stunned the financial world. We are talking about an entity like the SVB, which did business with almost half of all the new companies backed by venture capital in the US. And, as Manuel Romera, director of the financial sector at IE Business School, points out, the reaction of the markets It is a fear that, in his opinion, is understandable. “How many banks are in this situation? This is the problem. The SVB case reminds us that there are many highly indebted entities with little liquidity, and limited solvency. You have to understand that we are running out of open bar ”, he warns. “Interest rates can hardly go up without triggering pain,” recalls Gilles Moec, chief economist at Axa Investment Managers.
But, as Filippo Alloatti of Federated Hermes Limited points out in a report, Silicon Valley Bank had problems with its “SV” (Silicon Valley) facet more than with its “B” (Banking) facet. “The problems it faced were more related to its clients and the industries it served (the technology and venture capital sectors) than to its basic banking operations. The financial results were affected by the economic conditions of these industries”, he assures.
So there are many reasons to think that contagion will be limited. In a note, Ismael Cruz, an analyst at Investing.com, affirms that “the contagion should not go any further. Concerns about the bench are not justified. The knee-jerk reaction of the market seems somewhat exaggerated. It has caused a great psychological impact that has awakened the old demons of the market ”, he exposes.
And he adds: “It is true that the European banking sector, especially the Spanish one, has revalued a lot in recent months due to the rise in interest rates, rising more than double that of the Stoxx600”. In other words, yesterday was a good time to checkout. Josep Soler, director of the Institut d'Estudis Financers (IEF), is pragmatic: "Today I would not be very worried. They lose their nerves and it is normal. Many investors in Europe took the opportunity to make profits and switch to fixed income, which offers higher returns with interest rate rises”.
“The current uncertainty in the market is great but it cannot be compared to the bankruptcy of Lehman Brothers in 2008. European banks are not as involved in the businesses of technology companies and the ECB has tools to support the liquidity of entities European ones”, writes Alfredo Jiménez, from the Spanish Institute of Analysts.
