The US Banking System Under Stress – RSI Swiss Radio and Television

The US banking system witnessed between Thursday and Friday two days of great anxiety which also caused a sharp drop in European stock indices. The move was triggered by meltdowns at Silvergate Capital that will shut down Silvergate Bank and SVB Financial Group, which includes a Silicon Valley bank that was shut down by California banking regulators on Friday. It was the largest commercial bank failure since 2008.

The problems of the two groups have infected other institutions in the country (small and medium enterprises as well as corporate giants JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) and spread around the world. And the Swiss market index, which has always moved above 11,000 points since the beginning of the year, closed on Friday, after a week of continuous decline, at 10,765 points. The decline on Friday was 1.68%. Particularly affected were shares of UBS (-4.53%) and Credit Suisse (-4.84%). At the end of the day, Frankfurt fell -1.31%, Paris -1.3% and London -1.67%, despite the good news about the development of the GDP of Great Britain in January. The Dow Jones index closed at 31,900 points, 1,500 less than last week. On the other hand, the Nasdaq was just above 11,100, with a weekly decline of about 600.

Silvergate Bank, a major bank for the development of the cryptocurrency sector, announced the closure, with the orderly liquidation of operations whose parent company on Thursday guaranteed full payment of all deposits.

Even greater was the shock caused by the ignominious end of Silicon Valley Bank, which since its founding in the early 1980s has become a point of reference for innovative companies and technology start-ups in the region. With more than 200 billion in assets, the institute is embroiled in the second largest bankruptcy in US history for a commercial bank (thus excluding investment bank Lehman Brothers), after Washington Mutual Bank in September 15 years ago (307 billion).

All funds were transferred to a new entity created by the authorities – the National Deposit Insurance Bank of Santa Clara. Small depositors (those with up to $250,000) will have access to their funds starting Monday. While others will be able to point to a specific emergency line.

The situation is also being watched closely in Washington. “The banking system remains resilient,” Treasury Secretary Janet Yellen said Friday after a meeting with regulators dealing with the SVB issue. The fear is that such cases could recur in the coming days. Indeed, Silvergate Capital and Silicon Valley Bank may have been just the first financial institutions to fail to manage the impact of rising interest rates on banks’ balance sheets. In particular, as many analysts have pointed out, rising interest rates have left banks saddled with low-yield bonds that cannot sell quickly without losses and find themselves without the liquidity needed to, for example, respond to withdrawal requests for your own bonds. customer deposits.

There is a very big concern in the US financial sector that, in the face of a slowdown in inflation, the central bank could raise interest rates further. A move that could further impact investments considered riskier and therefore more expensive in and of themselves, such as those in cryptocurrencies and Silicon Valley startups as even large groups rethink investments and undertake large-scale restructurings.