SVB, the biggest bank failure in the United States since 2008, shakes up the sector

The sudden rout of Silicon Valley Bank (SVB), which was shut down by US authorities on Friday, has created a wave of panic among the banking sector, with markets wondering about the consequences of the largest bank failure in the United States since the crisis. 2008 financial.

The bank was no longer able to cope with the massive withdrawals of its customers, mainly tech players, and its last attempts to raise fresh money were unsuccessful.

The American authorities therefore took official possession of the bank and entrusted its management to the American agency responsible for guaranteeing deposits (FDIC).

Little known to the general public, SVB had specialized in the financing of start-ups and had become the 16th American bank by the size of assets: at the end of 2022, it had 209 billion dollars in assets and around 175.4 billion in deposits.

His disappearance not only represents the largest bank failure since that of Washington Mutual in 2008, but also the second largest failure of a retail bank in the United States.

Reflecting the ambient concern: US Treasury Secretary Janet Yellen assured, shortly before the announcement of the takeover of SVB, to follow the situation in the banking sector “very closely”.

– Surprised investors –

In the markets, the panic movement began on Thursday, after SVB announced that it was seeking to quickly raise capital to cope with the massive withdrawals of its customers, in particular losing 1.8 billion dollars on the sale of financial securities. .

The announcement surprised investors and reignited fears about the strength of the banking sector as a whole, especially with the rapid rise in interest rates which is lowering the value of the bonds in their portfolios.

The four largest US banks lost $52 billion on the stock market on Thursday and in their wake, Asian and then European banks faltered.

In Paris, Societe Generale lost 4.49%, BNP Paribas 3.82% and Crédit Agricole 2.48%. Elsewhere in Europe, the German bank Deutsche Bank dropped 7.35%, the British Barclays 4.09% and the Swiss UBS 4.53%.

On Wall Street, the big banks rallied on Friday after the rout the day before: JPMorgan Chase took 2.3% in mid-session while Bank of America and Citigroup were near balance.

Regional banks, on the other hand, were more in turmoil, First Republic and Signature Bank, for example, each dropping 23%.

“As is often the case in finance, the problem did not come from where we expected it,” explains Alexander Yokum, of the CFRA firm. “Many observers wondered about the debt that accumulates on credit cards or in the office real estate market. We did not expect a + bank run +”, a chain reaction that begins with massive customer withdrawals, he told AFP.

– Safeguards –

Investors “also saw in the bank’s difficulties the impact of the inversion of the yield curve (when short-term rates are higher than long-term ones, editor’s note)”, underlined in a note Christian Parisot, from broker Aurel BGC. Banks generally borrow short-term to make medium- and long-term loans.

Not to mention that these difficulties coincided with the announcement, Wednesday evening, of the liquidation of Silvergate Bank, an establishment particularly present in cryptocurrencies.

Stephen Innes, an analyst at SPI Asset Management, wants to be reassuring, estimating “low”, in a note, the risk “of a capital or liquidity incident among the big banks”.

Since the financial crisis of 2008/2009 and the bankruptcy of the American bank Lehman Brothers, banks have had to give reinforced guarantees of solidity to their national and European regulators.

For example, they must demonstrate a higher minimum level of capital intended to absorb any losses.

For analysts at Morgan Stanley, “the funding pressures facing SVB are very unique and should not be seen as the norm for other regional banks.”

“We do not believe that the banking sector is facing a shortage of liquidity,” they insist in a note.