In recent days, the market has been shaken before broke down In Silicon Valley Bank, the 16th largest US bank by assets with approximately $210 billion in assets and $175 billion in deposits. It was established in 1983 and has established itself as a reference point for startup companies and tech companies from all over Silicon Valley.
To understand the reasons that caused such an effect, it is necessary to make a brief and broad review of the birth and development of the American banking system, which is defined as dual because banks supervised by the federal government and banks supervised by individual states operate in parallel. In 1782 he was born North American Bank In Philadelphia until 1863, the birth of any bank was by registration with the Banking Commission of the state in which it operated. However, the legislation was very unstable in some states, which made it easy for banks to fail, because they issued banknotes by collecting money, which made the fraud hypothesis more likely. The goal of eliminating all kinds of abuses by state banks led to the enactment of a law National Banking Act of 1936 which established the so-called National Banks, of the Federal type, under the supervision ofOffice of the Comptroller of the Currency They are obliged to verify that national banks support the issuance of banknotes with the participation of US government bonds. In particular, the law aims to impose a heavy tax on banknotes issued only by state banks (Financial institutions and markets, F. MyshkinEakins, E. Beccalli, 9th ed., Pearson, 2019).
Under the presidency of Woodrow Wilson, in 1913, A.P Federal Reserve Act who created Federal Reserve System To ensure economic stability through the creation of a central bank capable of supervising monetary policy. But during the Great Depression of 1930 to 1933, there were about 9,000 bank bankruptcies which caused many problems for depositors. In response to the financial crisis of 1929, the United States Congress passed Glass-Steagall Law It is named after its promoters, Senator Carter Glass and Congressman Henry B. Steagall. FDIC filed (Federal Deposit Insurance Corporation), an independent agency designed to protect customer deposits in the event of bank failure with a maximum balance of $250,000 (payment method(and supports banks in difficulty by searching for potential buyers who are willing to assume all risks of the bank in difficulty)Purchase method and assumption). The reform also focused on a clear separation between commercial bank And Investment Bank Where the former was authorized to carry out exclusive traditional banking activities while the latter was authorized to carry out exclusive investment activities (the so-called investment and corporate activities). Thus, commercial banks were engaged in fund-raising and lending as the securities business (excluding government bonds) was reserved for investment banks. Despite the legislation in place, there were many attempts at annulment and the Supreme Court, in 1988, ratified a Federal Reserve action that allowed JP Morgan to underwrite bonds and stocks, recognizing this privilege also to other holding companies. It follows that, on the international scene, there was a strong need to extend the real estate and insurance business to American banks as well. In 1999 it was finally cancelled Glass-Steagall Law to make room for The Gramm-Leach Bliley Act to Modernize Financial Services that authorized how a bank could provide commercial banking, securities and insurance services.
It can be seen how the banking regulatory system is very complex, which inevitably led to the proposal of complex services such as the mobilization of mortgages through the process of securitization (securitization) or the process of accumulating small, illiquid financial assets and converting them into negotiable debt securities in a secondary market (Mortgage guarantee). In 2008, a particularly important financial innovation was the subprime, a new class of home loans granted to borrowers with poor credit ratings. On this occasion, the Federal Reserve took on a role lender of last resort Or rather, the “lender of last resort” to support the banking system.
At the European level, BRRD deserves attention, Bank recovery and decision routing, directive no. 2014/59 / EU in order to prevent and manage the banking crisis. In the most serious cases, from January 1, 2016, a certain procedure called saving in (internal bail), under which bailouts with public resources are excluded because the state intervenes as a last resort rate. Therefore, the direct participation of the bank’s shareholders, investors and current account holders is envisaged in order to address any economic losses and reconfigure capital. The instruments involved are shares, convertible bonds, securities used as collateral, unsecured bank notes and deposits of up to 100,000 euros.
What happened to the Silicon Valley bank raised investor fears of a new crisis, as happened in 2008. The institute suddenly announced a loss of $ 1.8 billion and an increase in capital of $ 2.25 billion to compensate, but the result was a real bank defense of withdrawals amounting to 42 billion On March 9, 2023. Every rescue attempt was now in vain and the bank became so insolvent that in the early days of March SVB reported a loss of approximately $958 million. Two more bankruptcies followed, Signature Bank and Silvergate Bank (known for cryptocurrencies).
The bank has invested $120 billion in a portfolio of long-term government bonds Mortgage guarantee (Securities derived from mortgage loan securitization transactions) [https://www.borsaitaliana.it/borsa/glossario/mortgage-backed-securities.html] In the amount of 91 billion. If fixed-income securities are held to maturity, interest rate fluctuations do not affect the repayment of the face value. A different case is the liquidity crisis of the bank which is forced to sell which causes a loss in the value of the assets. This happened as a result of the continuous hike in interest rates by the Federal Reserve due to the market context that emerged in the aftermath of the geopolitical events in Ukraine.
From an organizational point of view, The situation in Europe differs from that in the United States which is strongly marked by a Release in this context. Relaxing supervision of banks with assets of less than $250 billion relieved SVB from meeting liquidity requirements. The analysis requires insight into the bill known as Dodd-Frank Wall Street Reform and Consumer Protection Act It is named after its signatories, Senator Christopher Dodd and Congressman Barney Frank, and approved by Congress in July 2010. It contains 15 titles and 541 articles. Created new legislation Consumer Financial Protection Bureau Within the Federal Reserve with a view to supervising all companies aiming to issue residential mortgages with assets greater than $10 billion and all issuers of financial instruments aimed at the poorest segment of the population. The law also provides for a Financial Stability Oversight Boardchaired by the Secretary of the Treasury, in order to identify and formally designate SIFIs at the statutory level (SIFI) (Systemically important financial institutions). It also limits the speculations of banks with their own securities (the so-called Volcker rule) and strengthens the protection program whistleblower (i.e. whistleblowing company employees), already provided for by Sarbanes-Oxley Law Since 2002.
Initially, the rule applied to all banks with balance sheet assets exceeding $50 billion. In 2018, under the presidency of Donald Trump, the cap was raised to $250 billion, exempting some regional banks from stricter oversight rules. He follows The regulations in force in Europe as well as those regarding liquidity requirements to be provided and those relating to periodic supervision were applied only to the first 14 US banks. Risk taking by individual banks is inevitable and if, on the one hand, The rise in interest rates was a decisive factor that revealed the sensitivity of the economy, and it can be noted that there is no periodic supervision system in America, which is prevalent in the euro area thanks to Basel 3.
Effective regulatory intervention can prevent spillovers of this magnitude and demonstrate persistent flaws in the regulatory system by supervisory authorities. It will be necessary to identify appropriate measures to compare the phenomena of the crisis and to re-examine existing regulations. Recently, the Basel Committee itself, in light of recent events, has emphasized the need for “A strong global banking system, underpinned by effective governance, risk management practices, strong supervision and international cooperation” [https://www.ansa.it/sito/notizie/economia/2023/03/23/comitato-basilea-impariamo-la-lezione-dalla-crisi-banche_8cde3ef0-786d-4b84-8655-dadd801d531f.html]
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