Ihe collapse of Silicon Valley Bank (SVB) on March 10, which is at the origin of the recent banking turmoil, was triggered by a panic movement, causing a massive and abrupt withdrawal of money from its customers . This led the monetary authorities to close SVB for fear of contagion to the entire banking system. And to mobilize 160 billion dollars (148 billion euros) in the form of loans to meet the needs of other establishments, so as to reassure their depositors. This policy does not seem entirely effective, since the list of US banks in difficulty has grown, notably with Signature Bank and the First Republic Bank.
A first explanation for the failure of SVB is that it is a bank specializing in financing, by nature risky, start-ups. SVB has benefited from the particular enthusiasm of the tech sector during the pandemic. The start-ups carried out significant fundraising, which caused deposits with SVB to jump from 102 to 189 billion dollars. SVB invested this abundant cash in long-term, low-risk debt securities, in particular US Treasury bills.
But, from 2022, the situation of the tech sector has turned around. Startups struggled to raise funds after the Fed’s sharp hike in policy rates, which rose from 0% to 4.75% in about a year. The start-ups then sharply reduced their deposits with SVB. To cope with these unforeseen withdrawals, the bank had to sell its bonds urgently and with significant losses, the value of which had fallen sharply in the wake of the rise in interest rates. Seeing SVB’s losses of around $2 billion, its customers lost confidence and rushed to withdraw their deposits before it was too late.
Streamlined regulation
Beyond the mismanagement of the leaders of SVB, this serious banking crisis highlights the responsibility of the monetary authorities. The decision to tighten their policy in order to stem inflation was a questionable choice for two reasons.
First of all, the causes of recent inflation are not monetary, but due to structural causes: energy crisis, war in Ukraine, price increases by companies to maintain, or even increase, their margins in a capitalism increasingly oligopolistic…
Secondly, it was foreseeable that the rise in rates would result in instability on the financial markets, especially since these had been fueled by a massive creation of liquidity orchestrated by the central banks to deal with the crises. financial and health. Thus, as was the case during the 2008 crisis, the authorities underestimated the influence of monetary policy on financial stability.
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