”It must be said, Europe has regulated the financial sector much better than in the United States”, launches Roland Gillet professor of finance at the Sorbonne (Paris). “The words of Jerome Powell, President of the Fed, or of American President Joe Biden suggest this, in hollow. How could we arrive at such a situation for banks like SVB, which is still the size of KBC (more than 200 billion balance sheet)? The answer is simple: between the initial intentions of the regulator and their realization in the United States, there is a margin. In Europe, the appointment of a supervisor and the implementation of stress tests for systemic banks makes it possible to avoid this type of case and to look to the future with a little more serenity”. However, zero risk does not exist.
Cash management
For the expert, it is obvious that liquidity management (ALM, for asset liabilities management, Editor’s note) in banks will have to be closely scrutinized in the coming months. “I don’t know how the banks hedged when they extended long-term mortgages of 0.5% to 1% – it’s been seen – but there is cause for concern. I also imagine that they have taken out hedging contracts against rising rates, although it is not clear to what extent”adds Roland Gilet.
Who is also keen to qualify the situation because of the remuneration of deposits, even if it is obvious that the rise in rates is hurting bond stocks. “The ECB also plays a key role here, and then let’s be honest, the 3-month euribor is at 2%, but the savings rates in the banks remain ridiculous. This will not please savers, but there is a buffer there for financial institutions”.
Credit Suisse plunged almost 30% and puts European banks under pressure
Finally, for Roland Gillet, the contagion effect should be limited by the fact that the very nature of inflation is different on both sides of the Atlantic. “Core inflation – core inflation in jargon – in the United States is much higher than in Europe, due to stimulus plans, the beginning of an inflationary spiral on wages, in a tight labor market; on the Old Continent, inflation is high but has not led to interest rate hikes as significant as in the United States. The 10-year rates are therefore not scandalously high in Europe”concludes the professor.
