Red-hot markets this Monday -Ibex 35, CAC 40, DAX…- after the crash of SVB Financial Group (NASDAQ:SIVB), which is causing a contagion effect in the international banking sector.
“Turbulence in the U.S. banking sector has prompted regulators to intervene and led to speculation that the Federal Reserve might take a less aggressive approach to tightening policy to avoid new risks to the financial system,” said Sergio Avila, an analyst at IG.
“U.S. authorities have come to the rescue of the banking system in the U.S., stepping in to cover all depositors in the failing banks SVB and Signature, while providing a new program (the Bank Time Finance Program, or BTFP) for banks that will allow them to access liquidity to meet depositors’ needs. This has now opened the question of what the Fed will do at its next meeting and subsequent policy decisions.”
“One view seems to be that increases are now off the table, just a week after Jerome Powell’s appearance in front of lawmakers saw the chances of a 50 bps increase. Others might argue that this actually allows for more rate increases, given that the problems for banks caused by higher interest rates are now factored into the new lending program,” Avila notes.
“This is not a ‘rescue’, but a private solution. But the Fed has enabled emergency liquidity for depositors to dispose of their funds (even those that exceed the legally guaranteed amount) while managing their sale to another bank”, they point out in Bankinter (BME:BKT).
“SVB was the sixteenth largest bank in the U.S. – the largest to fail since 2008 – and Forbes magazine declared the bank one of the best in the country in 2022. With this we want to emphasize that when the depositors of an entity lose confidence in it, the strength and capitalization of the same matters little, as has been demonstrated in this case and in many previous ones, “they sentence in link Securities.
The chaos has been such that some experts already compare SVB’s bankruptcy to that of Lehman Brother in 2008. The prestigious economist Paul Krugman has downplayed the threat posed by the collapse of Silicon Valley Bank to the financial sector.
In a Twitter thread (NYSE:TWTR), the New York University economist argued why SVB’s failure was not a “harbinger for the banking system as a whole,” or a repeat of the Lehman collapse that triggered the global financial crisis of 2007/08.
Krugman doesn’t think there’s much chance of contagion to other banks.
The Nobel Prize-winning economist said he was concerned about the effects of SVB’s collapse on the broader venture capital ecosystem. “But, hoping these aren’t the last famous words, this looks more like a fairly narrow sectoral crisis.”