The collapse of two American banks caused tension in the financial markets

The collapse of two American banks caused tension in the financial markets

The collapse of two American banks caused tension in the financial markets

Signature Bank branch in New York, March 12, 2023.

New York/Brussels/Prague – In the United States, since the end of last week, the banking companies Silicon Valley Bank (SVB) and Signature Bank went bankrupt, which raised concerns on the financial markets about the future development of the banking sector. However, according to analysts, both banks were specific and their collapse does not mean the beginning of a new financial crisis. SVB focused on so-called start-ups and Signature was heavily involved in cryptocurrencies.

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American authorities closed the Californian company SVB on Friday and the New York company Signature on Sunday. Due to the collapse of SVB and Signature, share prices of banking companies in the United States and Europe came under considerable pressure. The collapse of SVB is the largest bank failure in the United States since the height of the global financial crisis in 2008.

SVB specialized in technology companies backed by venture capital. Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada and North Carolina. It had eight business lines, including commercial real estate and digital banking. Almost a quarter of its deposits were from the cryptocurrency sector.

US President Joe Biden assured today that the US banking system is safe and that the government will do everything to protect savers. “Americans can trust that the banking system is safe,” Biden said. “Your deposits will be there when you need them,” he added. He also said he would ask Congress and regulators to strengthen banking rules.

The European Commission (EC) said it was monitoring the situation. However, she pointed out that SVB was present in the European Union only to a very limited extent. “We note the quick and decisive reaction of the US authorities. At the EU level, Silicon Valley Bank's presence is very limited and we are in contact with the relevant authorities,” said an EC spokesman.

The Deputy Governor of the Czech National Bank (ČNB), Eva Zamrazilová, was asked by ČTK that there are no banks operating in the Czech banking sector with a business model similar to that of SVB and Signature. “The Czech National Bank is closely monitoring the situation in the USA, where two medium-sized banks failed,” Zamrazilová said. “In the Czech banking sector, banks do not operate with a business model similar to banks that ran into problems in the USA. Domestic banks are well capitalized and are obliged to comply with strict regulatory rules, including those for liquidity management,” she added.

Analysts agree that the collapse of the two American banks does not mean the beginning of a new financial crisis. “Although this is the biggest crash since 2008, today's situation is different from the financial crisis of that year. The world economy is incomparably better off. SVB did not play as significant a role in the system as Lehman Brothers before its collapse in 2008. So it should not there will be no domino effect,” said Portu analyst Marek Malina.

“The failed banks were specific in many ways. In general, we can say that they were hit by high interest rates. Due to the rapid growth of deposits, they bet on purchases bonds, the prices of which, however, fell with the rise in rates. Deposits in standard banks have grown several times more slowly in recent years, which limits the possibility of their losses. In addition, the failed banks concentrated on crypto business, moreover, in young companies – that is, only in a small corner of the banking market, ” said XTB analyst Jiří Tyleček.

The collapse of financial companies SVB and Signature Bank today led to a significant drop in European stock markets. For example, the shares of the German financial company Commerzbank and the French bank Société Générale weakened sharply. Share prices of the British bank HSBC also fell, as it announced that it would acquire the British part of the bankrupt SVB for a symbolic one pound. US stocks opened today's trading with a decline, but later erased losses and strengthened.