And if the story was stammering? On March 15, 2008, the American authorities bailed out Bear Stearns, the fifth investment bank on Wall Street. First crack in the subprime house of cards that would lead to the collapse of the Lehman Brothers bank six months later. Today, it is the bankruptcy of the Silicon Valley Bank (SVB) that is shaking the entire financial planet, reviving the specter of a global banking and financial crisis.
And yet, these two routs have nothing to do with each other. In 2008, the baroque, sophisticated and often very opaque arrangements of the magicians of finance had caused the crisis, plunging the world into a historic recession. Fifteen years later, SVB is – just – the first victim of the Federal Reserve’s interest rate hike caused by inflationary overheating. In recent years, thanks to the central bank’s zero interest rate policy, new technology start-ups have raised astronomical sums from financial investors or business angel wealthy. Fresh money that they deposited in the accounts of specialized banks which began to swarm, offering tailor-made services to these companies. SVB had even become the darling establishment of the most beautiful Californian nuggets. At the end of 2022, it thus posted nearly 175 billion dollars in deposits. The video streaming box company Roku had entrusted it with nearly $487 million, or a quarter of its cash; video game publisher Roblox, nearly 150 million…
As a good family manager, the Silicon Valley Bank had placed a large part of these sums in US Treasury bonds. Problem, when long-term interest rates began to tighten with the monetary tightening of the Fed, the value of this bond portfolio unscrewed. And when start-up clients, hit by the cooling of the tech sector, wanted their money back, SVB was unable to return their funds causing a bank panic precipitating its bankruptcy. Today, all the regional American banks specializing in tech, like First Republic or Signature Bank, are now in the hot seat and their stock prices have literally collapsed. To prevent the fire from gaining the entire banking sector, the American Central Bank has assured that it will lend banks all the money they need to reimburse customers who wish to withdraw their deposits. And the US government has promised to cover the Fed’s losses with a $25 billion backstop.
The lessons of the crisis
If Europe is spared for the moment, we can already draw four lessons from this big financial firedamp.
First, the world is only beginning to discover the perverse effects of the easy and free money policy practiced by Central Banks for almost a decade. The rise in interest rates will leave its mark everywhere. In the United States, it is part of finance that is cracking. In Europe, it is the States whose indebtedness has exploded with the “whatever the cost” and the war in Ukraine which see the service of their debt racing: in France, the burden of the debt has increased by nearly 13 billion euros in the space of just one year.
Second, regulation is good. Banks are businesses like no other. Historically, all serious banking crises have caused deep and long-lasting recessions. However, it is precisely the relaxation of solvency rules for small regional banks, decided by Trump a few years ago, which has aggravated the current crisis.
Thirdly, the much more generalist and diversified European and particularly French model of the “universal bank” is ultimately resilient.
Fourth, startuppers who wanted to reinvent finance by doing without States are very happy to find a savior as a last resort, when everything collapses. Finally, the bank “à la papa” is not dead…