The collapse of Silicon Valley Bank is not a new Lehman but the markets are shaking: European stock exchanges are down

It’s not a new Lehman, but it has all the makings of a financial earthquake that the US authorities tried to stem last night guaranteeing the deposits of Silicon Valley Bank and closing another bank specializing in startups and cryptocurrencies: the Signature Bank. Timely action which, however, did not prevent the collapse of the European stock markets this morning. The indices are all down sharply with Piazza Affari losing 4 percent two hours after the start of negotiations (bank stocks are practically sinking). It will then be Wall Street’s reaction in the afternoon to tell what level of confidence world investors place in the coordinated intervention plan between the United States government, the Federal Reserve and the SEC, the authority that supervises the financial markets. “It’s not a bailout, but we want to avoid contagion,” said the US Treasury secretary. Words that do not reassure the markets too much, who expect a clearer demonstration of Washington’s desire not to let the banks in Silicon Valley go bankrupt since this alone would avert a domino effect. For now, a buyer is being sought for Svb, but the only certain news is the willingness of the Anglo-Asian giant HSBC to take over the London branch of the Californian bank for a poundwhile for American assets various major banks have declined the invitation from the White House.

There is therefore panic on the European markets, but most analysts believe a risk of large deposit outflows and subsequent disinvestments for European banks is unlikely, which are more diversified than the American ones. However, as an analysis by Jupiter AM explains, what is happening draws attention to the change in monetary policy and its potential impact on lenders. “Raising rates and quantitative tightening, by removing liquidity from the financial system, can put pressure on asset values ​​and deposits, altering balance sheet structures and impacting net interest income, especially in the United States.”

It is not Lehman, but that of Svb the second major financial crash in American history after that caused by subprime mortgages in 2008. The origin is always the same, the excess debt: fifteen years ago it was the one in the home loan sector that brought the system down, now it is the exposure of the Californian banks against the technology sector and the blockchain that caused the meltdown. The increases in interest rates implemented by the American central bank to curb inflation have, in fact, put pressure on the securities of these sectors normally disadvantaged by a restrictive monetary policy. But this is only one aspect. What has transpired is that California banks have concentrated their investments in government bonds whose market valuations have worsened as the Fed’s monetary tightening has intensified up to creating a theoretical “hole” of 2 billion in the accounts of the Svb, which a few days ago it tried to fill with a capital increase but without success. Redemption requests from the bank’s customers came from here: 42 billion euro, a quarter of total deposits, were withdrawn in just one day.

The US Treasury has made 25 billion available for an operation it does not want to call a “bailout”, although it is difficult to find another term to define it. The point is that this is a big nut to crack for US President Joe Biden who already has to manage the problem of the public debt ceiling, which has already been reached but which the Republicans do not want to raise because they consider the public spending policy implemented to be senseless from Washington with super-incentives for industry.