Sabatini (Abi): “Svb? Lehman Brothers is another story, I don’t see any risk of contagion. The markets react emotionally”

«The Silicon Valley Bank case is a case in itself with its own characteristics that limit its effects. I don’t see the risk of contagion also because the rules are stricter in Europe» says Giovanni Sabatini, general manager of Abi immediately. Meanwhile, this morning the stock exchanges opened with deep losses and Piazza Affari in particular is the worst, dragged down by the collapses of the major banks.

What’s going on?

«Silicon Valley Bank is a bank that, for the United States, is medium-sized with a business that is focused above all on the world of innovative startups. In the years of great liquidity on the market, especially in 2021, there was a large inflow of capital into this sector. This large collection of capital, which the startups receive, is deposited with the Svb. So much so that in 2021 there is an enormous growth in its deposits which go from 108 billion dollars to 189, according to data cited by the Ft. It’s a significant growth. At this point the Svb must invest this capital and, in search of returns, begins to lengthen the maturities of its securities. Thus an imbalance begins to be created BETWEEN short-term deposits, which can be withdrawn on demand, and medium-long term assets. When the inflation race begins in the US and monetary policy changes direction with the Fed starting to raise interest rates again, it happens that the startups, which need liquidity the most, begin to ask for the money back. At the same time, the SVB begins to record losses on the portfolio of fixed-rate securities with long-term maturities. He then begins to sell part of the securities due to the need for liquidity and in this way the losses materialize. Rumors of difficulty begin to circulate immediately. The bank plans to deal with this situation by trying to launch a capital increase which however is perceived by the market as confirmation of the bank’s difficulties. At this point the so-called escape from deposits is triggered, accelerated by today’s technology, this escape determines the crisis of Svb and the following intervention by the major US authorities which resulted in a move that is similar to our commissioning and subsequent intervention of the FDIC the American Deposit Guarantee Scheme».

What does the particular path of Svb say?

“While subject to the Basel regulatory framework, SVB fell into a category of banks subject to capital requirements but not liquidity requirements. In particular, Basel provides for two liquidity indices. The first is the Liquidity coverage ratio and the Net stable funding ratio. The first is an index constructed to verify that the bank has a buffer of highly liquid assets to cope with liquidity stress for at least thirty days. For Italian banks, this index is now over 160%. The US authorities did not apply this index. The second aims to ensure a balance between the duration of the bank’s funding sources and its uses. It aims to ensure that the bank has sufficient stable funding sources, for more than a year, to meet the funds needed to cover the maturity structure of its loans. This second index for Italian banks is also around 140%. If the US authorities had applied these indices they would have had alarm bells that would have signaled situations of imbalance for some time. In Italy and Europe, these indices are applied to all banks regardless of size».

Can Italian savers rest assured?

«It is a very different situation from 2008. The SVB is a medium-sized US bank with a focus on a particular sector with a business model that had created problems of liquidity imbalance. There are no relevant connections with the European banking sector and in particular the Italian one. The UK division was sold to HSBC. Italian banks are subject to a very incisive regulatory and supervisory framework. The liquidity ratios are well above the minimum levels required. Although we Abi are not a supervisory body, we observe that the context that has arisen in the USA with the crisis of the SV bank is very different from 2008″.

Why the collapses in Piazza Affari?

«The market is reacting emotionally. It has long been characterized by volatility and uncertainty, due to inflation, war, the development of monetary policy, and when bad news arrives it tends to overreact. In addition, the Italian market is more concentrated on the financial sector and there is also less liquidity. These elements help to explain the greater volatility of the Italian market».

LTrust is everything in the banking system. Isn’t there a risk that this case will weigh?

«By examining the framework rationally, the European panorama of rules is more rigid and stringent and applies to all banks. The crisis transmission channels, in this specific case, are not there given the particular business model of Svb. Lehman Brothers is another story».