As financial markets rocked sharply on Monday (March 13) following the collapse of California-based Silicon Valley Bank (SVB), US President Joe Biden and European officials tried to bring the sector back to calm. They wanted to ensure that there would be no contagion in the global banking sector, while the consequences can go as far as Chinese tech.
US President Joe Biden made a televised address early Monday morning to dispel concerns about the risk of contagiona sign that the White House takes the bankruptcy of this Californian bank specializing in the Tech industry very seriously, reports our correspondent in Miami, David Thomson.
Americans can trust “into a banking system” solid “, assured the American president. ” We won’t stop there ”: from the White House, he sought to fuel the most precious resource in the markets: confidence, the only bulwark against a large-scale contagion of the troubles of the SVB. The Head of State assured that he would “twhatever is necessary “.
US authorities have under guardianship Friday, March 10 this establishment close to technological circles. It was auctioned with the aim of find a buyer as soon as possible. They also intervened hastily in the face of the bankruptcy of two smaller establishments, Signature Bank and Silvergate Bank, known for its privileged links with the cryptocurrency community.
Sunday, the American authorities have announced that they will guarantee the withdrawal of all SVB deposits and allow access to all Signature Bank deposits. The Federal Reserve (Fed, US central bank) has agreed to lend the necessary funds to other banks that need them to honor withdrawal requests from their customers.
Joe Biden also said he would ask Congress to legislate to “ to strenghten » banking regulation, tightened after the debacle of Lehman Brothers in 2008. Because this legislation was then lightened by his predecessor Donald Trump. He promised that American taxpayers would not be taxed, but investors and shareholders would not be ” protected in the face of the losses suffered. The authorities want at all costs to avoid a panic in the markets on Monday and mass withdrawals by bank customers, a “ bank run with potentially devastating effects.
US President Joe Biden spoke very early on Monday to reassure after the bankruptcy of the SVB
“ No direct contagion in Europe, according to Brussels
On the other side of the Atlantic, European politicians are also trying to provide reassurance about the risk of contagion to the entire banking sector. “ There is no direct contagion and the possibility of an indirect impact is something we need to monitor, but at this time we do not see any significant risk. “, thus declared in Brussels the European commissioner for the Economy Paolo Gentiloni, before a meeting of the Ministers of Finance of the euro zone.
A spokesman for the Banque de France told AFP that French banks were “not not exhibited to SVB.
[A LA UNE A 18H] French banks “are not exposed” to the bankrupt American bank Silicon Valley Bank (SVB), told the#AFP a spokesperson for the Banque de France 1/5 pic.twitter.com/8giebEX6iw
– Agence France-Presse (@afpfr) March 13, 2023
Earlier in the day, the French Minister of the Economy Bruno Le Maire came out of the calm to rule out any risk of contagion: “ Calm down, calm down, and look at reality! “, he launched to the investors, estimating that “ the reality is that the French banking system is not exposed to the SVB. There are no links between the different situations in the United States and Europe.
In Germany, the banking supervisor Bafin assured Monday that the bankruptcy of SVB does not constitute “ not a threat to financial stability ” from the country.
On the side of the United Kingdom, the government announced that the British branch of SVB had been sold to the British banking giant HSBC, for a symbolic pound. “ SVB UK customers will be able to access their deposits and banking services as normal from today “, assures the British Treasury.
Tossed markets
However, these announcements did not prevent Wall Street from opening lower on Monday morning, before recovering in the morning. The prices of several regional banks collapsed. The Californian First Republic fell 60.49% at the end of the morning, losing more than three quarters of its market capitalization since Wednesday.
The European markets remained clearly in the red, but recovered after having lost more than 3% at the start of the afternoon: Paris and Frankfurt fell by 2.35% and 2.50%. London yielded 1.82% and Milan 3.56%, the largest declines since last summer. And banking stocks suffered sharp declines.
The debt market, perceived as safe haven investments in the event of a crisis, was also experiencing a turbulent session: certain government securities, in particular the short-term debt of the United States, posted historic declines. Oil also suffered the blow, with falls of more than 4%.
Investors remain feverish and prices volatile, despite efforts to reassure the American authorities, in order to avoid contagion after the bankruptcy of three American banks.
Fear in the Tech sector as far as China
The sector in China is also worried, as the Californian bank was popular there in biotechnology. To avoid panic, the Chinese partner of SVB could resume its stake in the Chinese subsidiary of the bank.
Chinese investors multiplied reassuring press releases on Monday concerning their risks of exposure to the American lender, reports our correspondent in Beijing, Stephane Lagarde.
BeiGene, one of China’s largest cancer pharmaceutical companies, claims to have over $175 million in uninsured cash deposits at SVB: 3.9% of its cash and short-term investments, but “ the company does not expect recent development with SVB to have a significant impact on its operation », reports CNN.
Same with Zai Lab, that fellow tumor treatment developer that has offices in Shanghai and San Francisco and $23 million in deposits.” intangible ” at SVB, should not be “ impacted in its operation according to its direction.
The tone has visibly changed from Friday morning, when policymakers awoke in China in a panic: During the Chinese night on Thursday, 42 billion dollars had left the coffers of the dismantled bank. Meanwhile, the rescue plan proposed by the US administration on Sunday has calmed the markets.
The subsidiary of the American bank in China could be taken over by its Chinese partner, the Shanghai Pudong development Bank, note it South China Morning Post. Knowing that the fall of the SVB leaves many Chinese start-ups in a financing dead end, according to FinancialTimeswhich recalls that the bankrupt institution indeed served as a bridge for groups operating between China and the United States.
Memories of 2008 in the minds
The SVB debacle illustrates the disruption of the entire US banking system in the face of Fed monetary tightening. Interest rate hikes in the United States have encouraged customers to put their money in financial products that pay better than current accounts, drying up a crucial source for the cash-hungry new technology sector.
The recent misadventures of the SVB recall September 13 and 14, 2008. The American authorities had failed to find a buyer for Lehman Brothers and refused to intervene, pushing the bank to file for bankruptcy, with dramatic consequences for the financial sector and the entire world economy.
►Also read: Why the fall of Silicon Valley Bank, the financial arm of tech, is causing so much excitement