The President of the United States, Joe Biden, appeared before the nation yesterday and began his speech with this sentence: "Americans can have confidence that the banking system is safe." Biden was forced to put this appearance on his schedule, before starting the trip to California, because of fears that the federal takeover of Silicon Valley Bank on Friday and Signature Bank on Sunday will be the source of 'a domino effect and that a financial crisis like that of 2008 occurs.
The president tried to calm spirits, after the stock markets began to show their nervousness, as did the account holders in these institutions and others. "The deposits will be there when small businesses throughout the country need them and the banks will have the ability to deliver the money, pay employees and pay bills," he stressed.
"First of all, customers who have deposits in these banks (the two intervened) have the guarantee that their accounts will be protected and that they will have access to their money today", he indicated. "And we repeat an important point, no loss will be borne by taxpayers", he stressed. "The money will come from the commissions that the banks pay to the FDIC (Corporación Federal de Dipòsits d'Assegurances)", he clarified.
But he wanted to send a warning to the investors of these institutions: "They are not protected. They knew they were taking a risk, and when it doesn't go well, you lose your money. This is how capitalism works", he remarked.
Both the Dow Jones and the Nasdaq remained in positive territory for much of the afternoon, always flirting with losses. Wall Street closed down 90 points, or 0.25%.
A completely different scenario was experienced in Europe, where the Ibex lost 3.51%, the worst session in nine months. It lost 9,000 points, held back by the fall in banking: all entities recorded setbacks of more than 6%.
It was even worse in other European markets, with Milan and London losing 4% and the European banking index falling almost 7%. Between last Friday and Monday, Spanish entities lost 16,800 million in stock market capitalization.
The Federal Reserve announced that it will roll out an emergency loan program, with the approval of the Treasury Department, to inject money into those most vulnerable banks and help guarantee that they have enough money to meet the needs of depositors. Regional banks are the ones that take the hit most directly. First Republic Banc and Western Alliance Bancorporation fell more than 50%.
The intervention of a bank that has always made profits for 30 years has stunned the financial world. We are talking about an entity like SVB, which did business with almost half of all 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 is a fear that, in his opinion, is understandable. "How many banks are in this situation? This is the problem. The case of the SVB reminds us that there are many heavily indebted entities with little liquidity and limited solvency. We have to understand that we are running out of free space," he warns. "Interest rates can hardly go up without causing 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 the “B” (Bank). “The problems it faced were more related to its customers and the industries it served (the technology and venture capital sectors) than to its core banking operations. The financial results were affected by the economic conditions of these industries", he says.
So there are many reasons to think that the contagion will be limited. In a note, Ismael Cruz, an analyst at Investing.com, states that "the contagion should not go any further. Concerns about banking are unwarranted. The market's gut reaction seems a bit over the top. It has caused a great psychological impact that has awakened the old demons of the market", he explains.
And he adds: "It is true that the European banking sector, especially the Spanish one, has revalued quite a bit in recent months due to interest rate hikes, as they have risen more than twice as much as the Stoxx600". In other words, yesterday was a good time to check out. Josep Soler, director of the Institut d'Estudis Financers (IEF), is pragmatic: "I wouldn't be too worried today. They lose their tempers and it's normal. Many investors in Europe took the opportunity to earn profits and move to fixed income, which with rising interest rates offers higher returns.”
"The current uncertainty in the market is great but it cannot be compared to the failure of Lehman Brothers in 2008. European banks are not as involved in the technology business and the ECB has tools to support the liquidity of European entities", he writes, from the Institute of Analysts.
