It is the biggest bank failure since the 2008 financial crisis. On Friday March 10, Silicon Valley Bank (SVB), a Californian banking establishment specializing in the technology sector, was closed by the American authorities after the massive withdrawals of its customers linked to a rise in rates. At the same time, two other banks also went bankrupt – Signature Bank and Silvergate Bank – causing concern in financial circles. L’Express traces the thread of an eventful week on the markets.
March 10: the collapse of the SVB
It was the fetish establishment for American start-ups in the technology sector, and the 16th bank in the United States by the size of its assets – 209 billion dollars at the end of 2022. On Friday March 10, Silicon Valley Bank was closed by the authorities and saw its management entrusted to the American agency responsible for guaranteeing deposits (FDIC), after having faced a massive withdrawal of its customers, mainly tech players. In question: the monetary tightening of the Federal Reserve (Fed), via an increase in rates, which put the margins of the banks under pressure and jostled the sector of new technologies, greedy in cash.
Two days before it closed, SVB announced that it was seeking to raise capital quickly, without succeeding, and that it had sold $21 billion in financial securities, losing $1.8 billion in the process. This announcement surprised investors and revived fears about the soundness of the banking sector as a whole, particularly with the rise in interest rates which is driving up the cost of credit. The four largest US banks lost $52 billion on the stock market in the process; Asian and then European banks also faltered. In Paris, Société Générale lost 4.49%, BNP Paribas 3.82% and Crédit Agricole 2.48%. Elsewhere in Europe, the German bank Deutsche Bank dropped 7.35%, the British Barclays 4.09% and the Swiss UBS 4.53%.
US Treasury Secretary Janet Yellen then summoned several financial sector regulators to discuss the situation. She reminded them that she had “full confidence” in their ability to take the appropriate measures, and considered that the banking sector remained “resilient”. The demise of SVB not only represents the biggest bank failure since that of Washington Mutual in 2008, but also the second biggest failure of a retail bank in the country.
March 11: USDC cryptocurrency caught in bankruptcy
On the night of Friday to Saturday, the creator of the cryptocurrency USDC, the fourth digital currency in the world by volume in circulation, announced that it had left 3.3 billion dollars in the coffers of SVB. The value of the USDC has fallen to its lowest level since its inception, around 94 cents, according to several trading platforms, when it is supposed to remain pegged at parity with the dollar. Other “stable” cryptocurrencies, such as Dai or Frax, are also affected by this fall. To deal with this, the Coinbase cryptocurrency exchange platform immediately suspended the conversion of USDC into dollars, more than 16 billion having been exchanged within 24 hours of the announcement.
For its part, the British Treasury assured that same day that the problems of SVB were “specific” and had “no implications on other banks operating in the United Kingdom”, while the government met with representatives of the technology sector to address their “concerns”. “The British banking system”, one of the largest in the world, “remains strong and resilient”, added the Treasury in its press release. The Bank of England explained that in the absence of “significant additional information”, it wanted to ask the court to place the English branch of the SVB in “bank insolvency” proceedings.
March 12: the concern of tech start-ups
In the tech world, the fall of SVB is worrying. The bank boasted that its clients were “nearly half” of technology and life sciences companies financed by American investors. While the bank’s orderly liquidation should allow them to recover up to $250,000 per customer, the maximum guaranteed by the FDIC, the uninsured portion of deposits amounted to about 96% of the total $173 billion. entrusted to the establishment, according to a report by the SVB.
“The real victims of the fall of SVB are the depositors: start-ups with 10 to 100 employees, who can no longer pay salaries, will have to put people on technical unemployment or lay off on Monday”, reacted on Twitter Garry Tan, CEO of Y Combinator, a start-up incubator. “Within a month or two, we will have wiped out a generation of American start-ups. These are years of American innovation that are at stake,” he warned.
British Finance Minister Jeremy Hunt also changed tone: he considered that the bankruptcy of SVB posed a “serious risk” for the British tech sector, because “a lot of companies do business with this bank”. The latter then met with Prime Minister Rishi Sunak and the Governor of the Bank of England Andrew Bailey in order to find a “solution”.
March 13: Biden’s pledge
Turnaround: US authorities announced that they were going to allow SVB customers to withdraw all of their deposits. An extraordinary decision to reassure individuals and businesses. The Fed has also agreed to lend the necessary funds to other banks that may need them to honor withdrawal requests from their customers.
“I am firmly committed to holding accountable those responsible for this mess,” said US President Joe Biden, assuring that “the American people and American businesses can have confidence that their bank deposits will be there when they will need it.” At the same time, the American authorities decided to close another player: Signature Bank, the 21st American bank, with assets estimated at 110 billion dollars at the end of 2022. The latter attracted crypto players, already weakened by the closure. from Silvergate Bank on March 9.
In France, the Minister of the Economy Bruno Le Maire also calms the spirits. “We have banks which are solid”, “a banking system which is solid” and “a liquidity ratio which is high”, he declared on the set of France info, rejecting any risk of contagion. His observation is shared by the European Commissioner for the Economy Paolo Gentiloni. According to the Italian, the bankruptcy of SVB and Signature Bank does not represent “a significant risk” for the European financial system.
March 16: Credit Suisse in turmoil
In Switzerland, the situation is worrying. Credit Suisse, the country’s second largest bank, has announced that it will borrow up to 50 billion Swiss francs (50.6 billion euros) from the Swiss national bank to “strengthen” the group, whose title is collapsed on the stock market the day before. The refusal of its main shareholder, the Saudi National Bank, to invest more to support the bank in difficulty for two years, had precipitated its tumble (-24.24% at the close, the worst drop in its history), while investors are concerned about the risk of contagion after the SVB bankruptcy.
“This additional liquidity will support Credit Suisse’s core businesses and its clients, as Credit Suisse takes the necessary steps to create a simpler, more focused bank that is focused on client needs,” the institution said in a statement. .
March 17: the European Central Bank meets
After the turbulence, the European Central Bank (ECB) decided to meet for the second time this week its supervisory body for banks in the euro zone. The purpose of the meeting: “discuss and take stock of recent developments in the banking sector”, said a spokesperson.
On Thursday, ECB President Christine Lagarde insisted that the banking sector in the euro zone is “in a much stronger position than in 2008”, adding that the ECB has all the tools at its disposal to act “if necessary”. At his side, the vice-president of the ECB, Luis de Guindos, explained that the capital of the big banks in the euro zone is “much higher” than it was before the global financial crisis.
These banking turmoil did not prevent the ECB from continuing its fight against inflation, by raising its rates by 0.5 percentage points as planned.
March 18: Western stock markets still down
Three brutal falls, interspersed with two meager rebounds: despite the measures of the Swiss and American authorities, the banking sector concluded a dark week with a new plunge on Friday, beating down all the markets. Concerns center primarily on Credit Suisse in Europe, which fell more than 8%, and First Republic in the United States, which fell 33%. Over the week, their stock market valuation fell by more than 25% and 80% respectively.
More generally, the index of European banks fell 2.85% on Friday, widening its losses to 11.47% over the week, the strongest in six months. Weekly losses were even more notable for Societe Generale (-16.94%), Commerzbank (-19.53%), ING (-14.76%), Standard Chartered (-14.30%) and Unicredit (- 14.31%).
At microphone of France Inter this Saturday, the president of the French Banking Federation (FBF) insists: “No risk of a banking crisis in France”. “When the value of a bank goes down or up, it doesn’t move the bank’s equity and its own solidity one bit,” he reassured.