What will happen on Monday, when financial markets reopen around the world? This is the question that has arisen since the Friday bankruptcy of Silicon Valley Bank (SVB), named after this American bank, hitherto favored by start-ups, and whose liquidity crisis hit hard Thursday and then Friday. the stock and banking markets, even before the announcement of its closure Friday evening by the authorities.
During the night from Friday to Saturday, the crypto market was shaken by the upheavals of the SVB. The world’s fourth-largest cryptocurrency, the dollar-pegged USDC, broke off its peg, falling as low as $0.88 per token, on massive selling. A few minutes earlier, its parent company, Circle, had announced that 3 billion dollars – out of 40 billion that constitute its reserves – were blocked within the SVB. The DAI, another major cryptocurrency, largely insured on USDC, also fell from its parity with the dollar.
“Contagion Phenomena”
Before that, the SVB had already dragged the American banking sector down with it – as of Thursday, from JPMorgan Chase (-1.23%) to Bank of America (-6.20%), via Wells Fargo (-6, 18%) and Citigroup (-4.10%) – but also Asian and European. In Paris on Friday, Societe Generale lost 4.49%, BNP Paribas 3.82% and Crédit Agricole 2.48%. The German bank Deutsche Bank dropped 7.35%, the British Barclays 4.09% and the Swiss UBS 4.53%. “Classic contagion phenomena”, however, reports to the Parisian Yamina Fourneyron, professor of economics at the University of Lorraine, researcher at Beta, specialist in banking regulation.
The financial world is now waiting. Is it just a liquidity crisis or, worse, an insolvency crisis? In the first case, the bank has the money of its customers, but it is not immediately available and requires the sale of assets (which can be complicated in the case of massive withdrawals, as is the case with the SVB). In the second case, the bank does not have enough money to pay its debts, nor does it have assets to find any. The first situation is obviously more enviable for everyone, and in particular for customers, who will always be able to find their money (although perhaps less easily and quickly than expected).
Withdrawals limited to $250,000
Regarding the SVB, the American Deposit Guarantee Agency took control of the establishment and set up a deposit guarantee allowing savers to withdraw their money from Monday, up to a limit of 250,000 dollars. It could also announce a bailout before markets reopen on Monday. “If it is only a liquidity crisis, one can imagine a capital increase in order to provide liquidity, observes Yamina Fourneyron. The question is who would then return to the capital? Other actors, other banks or, ultimately, the US Treasury. SVB had indeed raised $ 2.25 billion in funds on Thursday to bail out, but without regaining the confidence of its customers who had continued to withdraw their money massively.
In the short term, the difficulties relate above all to SVB customers who see their money blocked. AFP thus met, in front of the premises of the bank, on Friday, the boss of a start-up which has its accounts at SVB to pay its employees. SVB’s customers, mostly tech companies, need their money all the more as the rise in interest rates makes access to credit more expensive and therefore the need for cash is all the more necessary. , also notes Yamina Fourneyron. Tech companies, which had also started to take out their money, are therefore the first to suffer from the situation.
What are the consequences for other banks?
If the banks have trembled on the stock market, the consequences could only be slight, if we are actually moving towards a rescue of the bank. Proof of this is the slight improvement in the banking sector on Friday in the United States: JPMorgan Chase gained 2.54% while Bank of America and Citigroup lost less than 1%. The impact on the banks of the situation “depends on their exposure to SVB and tech companies”, explains Yamina Fourneyron. US Treasury Secretary Janet Yellen also said on Friday that the banking sector remained “resilient”. The opening of the financial markets on Monday will no doubt give clues to the seriousness of the crisis.