United States.- President Joe Biden tried to reassure Americans on Monday, stating that the banking system “is safe, despite the bankruptcy of three banks in less than a week and the fear of contagion that caused markets to fall in Europe.”
“Americans can be confident that the banking system is safe. Your deposits will be there (available) when you need them,” Biden said on television from the White House after the bankruptcy of Silicon Valley Bank (SVB).
Little known to the public, SVB specialized in financing projects and was the 16th largest bank in the United States by assets: at the end of 2022 it had $209 billion in assets and about $175.4 billion in deposits.
For now, there are three banks that, due to the withdrawal of large deposits, arise in the context of an increase in interest rates by the Federal Reserve (Fed) to contain inflation: SVB, Signature Bank and Silver Bank, the last. Two highly exposed cryptocurrencies.
On Sunday night, US federal authorities intervened to ensure that investors had access to their SVB funds and took over Bank Signature.
But more US banks are under pressure. Shares of San Francisco-based First Public Bank had plunged about 62% from Monday’s close.
In the United States, the main stock indexes fluctuated between red and green throughout the day. At the end of the New York Stock Exchange, the Nasdaq gained 0.45%, but the Dow Jones lost 0.28% and the S&P 500 lost 0.15%.
In Europe, the Paris, Frankfurt and Milan stock markets suffered a more serious blow, falling by about 3%.
“Far from calming nerves, fears of contagion have increased as investors dump risky assets across Europe,” City Index analyst Fiona Cincotta told AFP.
“Investors are targeting the banks of Spain and Italy, suggesting that these seem to be weak links,” he added.
– strong reaction –
Most financial market observers are, however, pessimistic and skeptical that the situation will compare to the financial crisis of 2008.
We all look to Thursday, when the European Central Bank will meet to probably decide to buy the signal.
Biden reacts in favor of “immediately”.
In a joint statement, the Fed, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department certified on Sunday that SVB depositors would have access to “all their money” starting Monday.
So “full access” to those who have their money at Signature Bank, the New York-based regional lender, which closed on Sunday after its share price sank.
According to President Biden, the government will do everything possible to recover its money, and, in the event, “taxpayers will not be held responsible for the losses.” And he states that he wants to strengthen the regulations of the sector.
“I am asking Congress and banking regulators to tighten the rules of banks, so that it is more likely that this type of bank failure will happen again,” he explained, criticizing Republicans for Donald Trump’s protectionism. introduced after the financial collapse of 2008.
Now, H has been told that the conditions of monitoring and management of the SVB will be investigated, because the facts “require a very deep, transparent and rapid analysis”, declared the president of the agency, Hieronymus Powell. The result will be known on May 1.
The Democratic president wants to “rationalize” those responsible for the bankruptcy, which is why he avoided bailing out the bank over the weekend and was in favor of firing the bank’s management.
– Global impact? –
Biden stressed that the investors who bought SVB took the risk and should bear the consequences because “this is how capitalism works.”
Across the Atlantic, in the UK, giant bank HSBC bought SVB’s UK division for just £1 ($1.2) in a bid by the Bank of England and the government.
French and German authorities, meanwhile, see no danger to their financial systems.
European politicians are trying to confirm. “There is no direct contagion and the possibility of an indirect impact is something that we have to monitor, but at the moment we do not see a significant risk,” declared the European Commissioner for the Economy, Paolo Gentiloni. Brussels.
The Oxford Economist also does not see any significant consequences for the economy or “systemic risks for the financial sector”, but predicts a more likely “deep recession” in the second half of 2023 in the United States.