The British Treasury confirmed on Saturday that the problems of the “Silicon Valley Bank”, which closed as a result of its bankruptcy, “are specific” and “have no implications for other banks operating in the United Kingdom.”
The closing of Silicon Valley Bank (SVB), in the largest US bankruptcy since the 2008 financial crisis, led to a minor panic in the markets.
Close the bank
And the US authorities closed the Californian bank on Friday, and the US Deposit Insurance Agency imposed its supervision on the institution, which is expected to reopen on Monday under a new name.
The British Treasury said in a statement that “the British banking system”, one of the most important banking systems in the world, “remains strong and resilient”.
The Treasury indicated that British Finance Minister Jeremy Hunt “spoke to the Governor of the Bank of England on Saturday morning” about the British branch of this American bank, to ensure that “its bankruptcy was dealt with smoothly and any disruption was minimized.”
The American bank is no longer able to deal with the huge withdrawals of its customers, especially technology companies, and its recent attempts to raise new funds were not successful.
And US Treasury Secretary Janet Yellen summoned a number of financial sector regulators on Friday to discuss the situation, assuring them that she had “full confidence” in their ability to take appropriate measures and believed that the banking sector remained “resilient”.
A surprising announcement for investors
In the markets, the wave of panic began Thursday, after the bank “Silicon Valley” announced that it is seeking to raise capital quickly to face the huge withdrawals made by its clients of their money, in addition to the loss of $ 1.8 billion from the sale of securities.
The announcement surprised investors and revived concerns about the strength of the banking sector as a whole, especially with the rapid rise in interest rates leading to a decline in the value of bonds in their portfolios.
The four largest US banks lost $52 billion on stock exchanges on Thursday, followed by Asian and then European banks.
In Paris, Societe Generale lost 4.49%, BNP Paribas 3.82% and Credit Agricole 2.48%. Elsewhere in Europe, Germany’s Deutsche Bank lost 7.35%, Britain’s Barclays 4.09% and Swiss UBS 4.53%.
On Wall Street, major banks rebounded on Friday after falling the previous day. Shares of JP Morgan Chase rose 2.3% in the middle of trading, while Bank of Amica and Citigroup approached balance.
On the other hand, local banks such as First Republic and Signature Bank witnessed more strikes, with their shares declining 23% each.
challenges
In a note, Christian Parisot of the Oriel BGC brokerage group confirmed that investors “also saw in the bank’s difficulties the effect of an inversion of the interest rate curve”, that is, when short-term rates are higher than long-term rates.
Banks usually borrow at short-term rates to offer loans at medium or long-term rates.
Another American group faces challenges. The parent company of Silvergate Bank, which operates in cryptocurrencies, announced Wednesday that the institution will be liquidated.
Stephen Innes, an analyst at SBI Management Group, said in a note that he wanted to be reassured that the possibility of a “capital or liquidity related incident between major banks” was “minimal”.
Since the financial crisis of 2008-2009 and the bankruptcy of the US “Lehman Brothers” bank, banks have to provide strong guarantees of the authority to control the national and European markets.
The European Banking Authority is subjecting fifty major banks on the continent to solvency tests.
The results of the last such test at the end of July 2021 revealed that financial institutions are able to withstand a serious economic crisis without serious damage.
For analysts at Morgan Stanley, “the funding pressures facing SVB are very specific and should not be taken as the norm for other domestic banks.”
“We do not believe that the banking sector is facing a liquidity shortage,” they added in a note.
