SVB opens “Pandora’s box”
Bank stocks plummet
By Max Borowski
03/13/2023 1:21 p.m
Silicon Valley Bank and Signature Bank investors’ money is safe. The US government guarantees all deposits of the two bankrupt financial institutions. However, European investors are far from convinced that the problems cannot spread.
The US government’s intervention was supposed to calm the financial market. US authorities announced that all deposits at the two insolvent banks, Silicon Valley Bank (SVB) and Signature Bank in New York, will be government-guaranteed and accessible at all times. This means that all bank customers continue to get their money, even beyond the limit of 250,000 dollars actually provided by the American deposit insurance. This measure is controversial. Because once again the state has to pay for the damage caused by risky banking transactions. But in this case it was more important for the US government to send out a signal of calm: nobody should worry about their money at any bank. This was intended to prevent the “bank run”, the panicked withdrawal of deposits from Silicon Valley Bank, from spreading to other financial institutions.
It will be possible to observe whether this works at the earliest during the course of the day, when the banks in the USA are open. However, there is still no sign of the hoped-for relief in the financial sector. On the contrary. After the opening of the stock markets in Europe, the prices of many banks collapsed. The European bank share index fell by 4.7 percent at times, the index of financial services companies lost 3.3 percent.
Among other things, the Commerzbank papers were under pressure, which fell in Frankfurt by almost nine percent to 10.42 euros. Deutsche Bank also lost 4.5 percent to EUR 10.18 – the lowest level in three months. In Zurich, the shares of the crisis-ridden Credit Suisse fell by 9.4 percent to a new record low of 2.26 francs. UBS shares fell by almost five percent to CHF 18.25. Other financial institutions such as BNP Paribas and Société Générale in Paris, ING and NN in Amsterdam and Banco BPM and UniCredit in Milan also lost between four and 8.3 percent.
Bank giants benefit
The US regulators have secured customer deposits after the dissolution of the SVB and the New York Signature Bank, said portfolio manager Thomas Altmann from the trading house QC Partners. This step “also shows how seriously the US Federal Reserve, the FDIC security fund and the Treasury Department are taking the case,” added Altmann. “The big and crucial question now is how many banks will follow.”
It is true that the danger of a direct domino effect, ie further “bank runs” as a result of state intervention should have been averted. However, the case of the SVB has revealed weaknesses that are probably not limited to the two banks currently affected, quoted the financial news agency Bloomberg from a letter from the investment firm Cholet Dupont Asset Management. “SVB kind of opened Pandora’s box.”
However, in the first reaction of investors in the USA, which was still very early in the morning, winners of the current crisis are also emerging: the shares of very large banking giants rose in pre-market trading. Because some observers expect that investors could transfer their money from smaller banks to larger competitors. Because, unlike the SVB or the Signature Bank, for example, these are classified as systemically important and would always be rescued by the state in an emergency. Bank of America gained around three percent, JPMorgan climbed almost two percent.