the black week of the world banks in five questions

The banking sector was shaken by the bankruptcy of several American branches and the stock market fall of Credit Suisse. Why did the banks have a dark week?

The failure of several US banks and the misfortunes of Credit Suisse rocked the banking sector for just over a week, reviving the specter of a financial crisis. Back to this “dark week” for banks.

• What happened to Silicon Valley Bank?

It all started with the announcement of the liquidation of Silvergate Bank, on Wednesday, March 8: this small regional bank, very popular with the cryptocurrency ecosystem, suffered massive withdrawals after several mishaps in the crypto world, including the bankruptcy of the FTX platform.

That same day, a presentation from Silicon Valley Bank (SVB), which specializes in financing technology companies, warned investors and customers, even if it was supposed to reassure them, that the bank is suffering from the slowdown in technology. They throw themselves into their wealth and the bank collapses on the stock exchange, putting it out of business. The Deposit Guarantee Agency (FDIC), an offshoot of the US government, then decided to take control of the bank from Friday, March 10, on the verge of implosion under the influence of massive withdrawals.

• What happened to US banks?

After the bankruptcy of the SVB, medium-sized or regional banks had a hard time on the stock exchange. The fate of SVB’s deposits, of which only 4% of the $170 billion is guaranteed by the FIDC, is worrying the technology sector, and concern is spreading to individuals and companies in other industries.

To calm the panic, the Fed (the Federal Reserve, the US central bank), the US Treasury and the FIDC announced on Sunday that SVB clients can withdraw all their deposits. The Fed is also pulling back financial artillery by offering loans to whatever banks need them to honor withdrawals. But the US authorities also announced on the same Sunday the automatic closure of Signature Bank, the country’s twenty-first bank and the third bankrupt of the week.

The following Thursday, March 17, a new bank is in turmoil, the First Republic, the fourteenth largest bank in the United States. Eleven major US banks nevertheless came to her rescue by depositing $30 billion to bolster her liquidity and prevent contagion from previous bankruptcies. Without really taking away the worries, First Republic still collapses on the stock market this Friday.

• What happened to Credit Suisse?

Credit Suisse, number 2 in the Swiss banking sector, has been collecting bad news since early March, most notably the loss of one of its long-term shareholders and the release of an annual report acknowledging “substantial weaknesses” in its internal controls.

But it is statements by the president of the Saudi National Bank (SNB), its main shareholder, that cause a wave of panic. In an interview on Wednesday, March 17, the latter assures that he would “absolutely not” recapitalize the Swiss bank in the event of a financial problem. Credit Suisse’s action collapsed on the stock market the same day (-24.24%), markets feared in particular a “bank run” of the large fortunes that had placed their assets in Credit Suisse.

• Why are we concerned?

If SVB’s bankruptcy made markets very nervous, Credit Suisse’s ‘black Wednesday’ is not a direct consequence. Because the concerns about the group, which is considered the weak link in the Swiss banking system, are not new: after the bankruptcy of the British financial company Greensill in March 2021, a succession of scandals has weakened the group, which accounts for more than 80% of its value. Not to mention the plummeting revenues and the presentation of a major restructuring plan.

Driven by the collapse of the Credit Suisse stock market and fears of contagion, European bank stocks also plummeted the same day, the result of a movement of panic. Banks such as Deutsche Bank, Commerzbank, Société Générale, BNP Paribas and Banco Sabadell lost more than 10%.

The Swiss central bank responded by ensuring its support and by committing to lend up to 50 billion Swiss francs (50.66 billion euros) in cash to Credit Suisse on the night from Wednesday to Thursday. After the worst stock market session in its history, the banking group recovered the next day (+19.15%). But the unrest awakens this Friday, the group falls again on the stock market. The stock closed 8.01% lower.

• What were the consequences in Europe?

In Europe, the succession of bankruptcies in the United States and the stock market setbacks of Credit Suisse have revived the specter of the 2008 financial crisis. the Swiss group brings calm to the markets.

At a meeting of the European Central Bank (ECB) the day after Credit Suisse’s “dark day”, President Christine Lagarde wanted to reassure by guaranteeing that European banks were “solid” but that the institution would be willing to seize “as necessary” to protect the financial system. And despite the turbulence, the ECB continued its fight against inflation and did not raise its policy rate by 0.5 basis point on the same day as planned.

But despite all the lifelines, the calm was short-lived: after a day of rest, the banking sector fell again on the stock exchange this Friday, counting all European indices: around 3 p.m. (Paris time), Paris fell by 1.11%, Frankfurt by 1 .04% and Milan with 1.33%.

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