AT the outcome of its meeting on Wednesday 22 March, the US Federal Reserve (Fed, central bank) sounded the alarm: the banking crisis triggered by the bankruptcy of Silicon Valley Bank (SVB), this Californian institution specializing in the financing of start-ups, is “susceptible”in the words of the Fed, “to weigh on economic activity, hiring and inflation”. An impact whose magnitude is still “uncertain”, adds the institution. These statements, however, leave little room for doubt: “Banking crises have negative macroeconomic effects »as recalled by Fabien Lbondon, lecturer at the University of Franche-Comté and author, with Jérôme Créel, director of the department of studies at the French Observatory of Economic Conditions (OFCE), of works on the subject.
Among the transmission channels of a banking crisis to the real economy, households and businesses, “ trust is probably the most important », emphasizes Julien Marcilly, Chief Economist at Global Sovereign Advisory. The uncertainty that a bankruptcy can generate on the one hand – even if the SVB was not a first-rate establishment – and the takeover of an establishment like Credit Suisse, on the other, on the overall soundness of the banking system has psychological consequences for economic agents.
“A deterioration in confidence, a sharp rise in risk aversion can lead to an increase in the propensity to save and contribute to postponing investment decisions”, explains Mr. Marcilly. Diminished confidence can have another impact, which the regulatory authorities do their best to defuse by multiplying reassuring statements about the soundness of banks: leading certain agents, individuals or companies, to want to withdraw their deposits in order to avoid the risk of loss in bankruptcy.
Tightening the credit tap
“If you see that such and such a bank is having difficulties, you tell yourself that yours may encounter the same, and thus be encouraged to withdraw your deposits”, argues Christophe Blot, economist at the OFCE. However, when the banks see their deposits (their liabilities) being reduced, they must adapt their assets, and therefore the loans they grant. This will affect the ability of economic agents to find financing. “Banks may also be required to raise the rates of the loans they grant”notes Mr. Blot.
To this effect of the tightening of the credit tap is added that of the flight towards quality. In other words, in a general context of eroded confidence and risk aversion, banks could favor the most solvent or solid customers – large companies, for example – to the detriment of small, more fragile companies. This phenomenon is not insignificant, because, in Europe, almost two thirds of the financing of companies, and more particularly of SMEs and VSEs, is done by banks, while large companies will rather appeal directly to the financial markets in issuing debt securities.
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