• Banks exploded for two reasons: lack of liquidity or capital strength problems. I suspect the combination of the two happened to this American bank.” Antonio Batuelli, number one at ABI, has a discerning vision for the credit system and is holding his nerve in the face of the big storm that has created overseas with the Silicon Valley bank.
Mr. President, the story has far roots: it was Donald Trump who raised the asset cap on banks like Svb, making the controls that Barack Obama wanted less stringent.
Â “This bank was exempted from complying with liquidity requirements, but deregulation in the US comes from afar: it was one of the first causes of the subprime mortgage crisis, then the great collapse of Lehman Brothers and now in Svb. However, in Europe, the supervisory authorities have not exempted anyone from applying liquidity requirements.
Basel III imposes capital solidity on European banks, covering liquidity needs but above all the balance between assets and liabilities.
Â «Of course, the ability to balance was a mistake for Svb, because with a very short group it is not possible to make long-term financial investments, and therefore, for liquidity reasons, they sold part of the financial portfolio, which led to capital losses in assets, which exacerbated the crisis “.
The sudden rise in interest rates changed the scenario: Svb, like others, was used to invest in securities with high returns resulting from a prolonged period of negative rates.
â€œTrue. Banks are very complex companies, and they only have two pans on the balance – assets and liabilities – so balancing is a very complex thing, which is why indolence is so risky. When central banks raise interest rates, it is not a public holiday for banks. The advantages appear immediately, which is the increase in revenues, but the disadvantages do not appear until later: the growth of the cost of financing, capital losses specifically on stock portfolios, and corporate crises that translate into insolvencies and non-performing loans.
Governor Ignazio Fiesco and ECB Executive Adviser Fabio Panetta continue to seek caution in raising interest rates.
“I totally agree with them: maneuvering around interest rates must be done wisely. The problem is that there are identical rules for all of the West, i.e. USA and Europe. The norms that favor a person are not different, but they do not prevent the growth of difficulties. We demand that the rules be applied between central rulers on both sides of the Atlantic in an identical manner for reasons of equality and assumptions of competition, competitiveness, prudence and vigilance. If anything, there is an over-regulation while crises always come from ‘outside’ ».
Then unbearable stress tests are needed. â € Strict rules are good for you! It’s like preventive treatments: You tolerate the effort, but then you have the benefits.” Are there systemic risks to Italy?
“Only the supervisory authorities can have a complete picture and the Minister of Economy in his capacity as Chairman of the Ministerial Committee for Credit and Savings. I have read reassuring statements by Giorgetti, with which I agree on the basis of logic. First: Lehman Brothers was a systemic crisis for one of the largest banks, which is not Svb. Second: Fifteen years have passed since Lehman, a period well used in Europe and Italy to achieve banking union with a single supervision resulting in an increase in the thresholds for underlying assets. Third: Our banks invest 400 billion euros in government bonds that produce liquidity reserves and the risk of loss is combated with not very long-term bond portfolios: profitability is lower and the deadline for 100% recovery is closer. ».
“The possibility of a spillover effect is something we need to monitor,” Gentiloni said.
Â «Sagio Gentiloni, it is no coincidence that he is the European Union’s Economic Commissioner. The spillover effects can already be seen from Friday with the declining trends on stock exchanges in Europe.”
Perhaps the real long-term danger will come from companies plagued by inflation.
• Companies have already started withdrawing deposits, more or less. Depending on needs and capabilities, in the sense that since the cost of financial assets is greater due to higher interest rates, they try to reduce the need for loans, in fact, we see that loans granted to companies do not grow much at a time when households are facing a rise in inflation. To transfer funds from current accounts as well as invest in government bonds or financial products with underlying government bonds. So I hope, after Svb, that the ECB will think more about the already announced decision to raise interest rates ».
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