The closure of Silicon Valley Bank and turbulence at crypto bank Silvergate have recently shaken up the financial world. From the point of view of several industry experts, however, there is no risk of infection.
Despite the recent turbulence on the financial markets after the US start-up financier SVB got into trouble, Finance Minister Janet Yellen has ruled out a government bailout of the bank. In the financial crisis a few years ago, the government intervened in this way, said Yellen on Sunday in an interview with the CBS television station.
But she emphasized: “We won’t do that again.” Yellen referred to reforms that have been implemented since the financial crisis. At the same time, she emphasized with a view to the SVB crisis: “But we are concerned about the depositors and are concentrating on meeting their needs.”
The US money house Silicon Valley Bank (SVB), which specializes in start-up financing, has been temporarily closed and placed under state control after a failed emergency capital increase. This was announced by the US deposit insurance company FDIC on Friday. The SVB, founded in 1983, had seen huge withdrawals of funds in the past few days as a result of liquidity concerns.
Shock waves go through the financial sector
SVB shares were suspended from trading on Friday after a price slide due to the acute emergency. Other banks also came under considerable pressure on the stock exchange. The SVB caused a stir on Thursday when it surprisingly announced it would issue shares after a major sale of assets resulted in a loss. The shares posted a drop of a good 60 percent on Thursday alone.
The voluntary resolution of the US crypto bank Silvergate Capital had also sent shock waves through parts of the financial sector. Silvergate had already warned in the wake of the bankruptcy of the crypto exchange FTX that it might have to stop trading. However, Silvergate announced that it would repay all customer deposits. The fear of loan defaults in the banking sector had intensified again, the problems of the US banks also caused uncertainty on the European stock exchanges and caused the prices of Deutsche Bank and Commerzbank to drop significantly at times.
Yellen stresses the solidity of the banking system
Yellen said that when a bank collapses – especially one like Silicon Valley Bank with billions in deposits – it’s “of course a cause for concern.” However, she emphasized that the American banking system is “really safe” and resilient. Americans could have confidence in the safety and soundness of the US banking system. With a view to the further action of the US Federal Reserve in the current situation, the minister did not want to comment further and referred to their independence.
Banking experts consider the clear reactions on the international financial markets to the difficulties of the SVB to be exaggerated. The events in California are a “typical example of an inappropriate panic reaction on the stock markets,” said Rainhard Schmidt from the Goethe University in Frankfurt/Main of the German Press Agency. “The price drop was inappropriate because the Silicon Valley bank pursues a very special business model that really bears no resemblance to that of almost all banks in most countries,” said the economics professor. There is therefore no systemic risk and no reason for further-reaching fears. “The rapid, extensive price recovery was fully justified.”
Financial market expert Wolfgang Gerke made a similar statement. “The SVB Bank does not endanger the international capital market. Your cluster risk from start-up financing is atypical for the banking sector,” said the President of the Bavarian Financial Center of the dpa. “German banks are in a stable position with their equity buffers and business models. Dangers in the USA come from the large bond portfolios of smaller banks,” emphasized the economics professor. The Federal Financial Supervisory Authority (Bafin) said on request: “We keep an eye on current developments and take them into account as part of our ongoing supervision.”
No immediate threat to Europe
Technology companies are particularly suffering from the current high interest rates because they make their refinancing more difficult. There is also the risk that loans can no longer be serviced. High interest rates also depress company valuations, since in such an environment the profits forecast for the future are worth less from today’s perspective. Silicon Valley Bank customers from the tech industry had recently withdrawn deposits because they needed liquidity themselves.
Joachim Klement from the investment bank Liberum Capital spoke of growing fears of a credit crunch. However, even he does not believe that the situation of the SVB poses an immediate threat to the European banking system. The US institute has a very special business model and specializes in venture capital and the financing of young growth companies. This is quite unique within the banking scene. Non-performing loans are likely to increase this year, but the reserves of banks in Europe and the US are sufficient to absorb problems. (dpa)