A bank on the brink shakes the American financial sector


On Wall Street, March 3, 2023.

Start of bank panic in the United States: short of cash, the company specializing in venture capital financing in California, Silicon Valley Bank (SVB), had to liquidate part of its Treasury bill portfolio in a hurry and bonds for 21 billion dollars (19.8 billion euros), collect a loss of 1.8 billion dollars and launch a capital increase to bail out up to 2.25 billion dollars.

The announcement was made, Wednesday, March 8 in the evening, and the action of the company, which finances half of Silicon Valley, collapsed on the stock market the next day by 60%. It lost an additional 20% in informal trading after markets closed on Thursday.

The contagion has spread to other Wall Street banks: on Thursday, the top four US institutions – JP Morgan, Bank of America, Wells Fargo, Citi – together lost $ 52 billion in capitalization, while the KBW bank index lost fell 7%, its largest drop since June 2020, in the midst of the Covid-19 crisis.

The shares of European banking groups also fell on Friday morning. Shortly before 10 a.m., the title of Société Générale lost 5.14%, BNP Paribas 4.33% and Crédit Agricole 3.35%. Elsewhere in Europe, the Deutsche Bank lost 6.95%, the British Barclays 5.04%, the Italian Intesa Sanpaolo 3.24%, and the Swiss UBS more than 4%. The affair brought down Wall Street, the S&P 500 losing 1.85% on Thursday. The Paris Stock Exchange fell sharply, Friday morning, by 1.91%.

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What happened ? It all goes back to the time of the health crisis and the zero interest rate policy of the Federal Reserve (Fed, central bank of the United States). American start-ups then raise capital en masse, at a time when money is flowing, and they deposit it in their bank, the Silicon Valley Bank, whose assets will double in 2021. This, logically, reinvests in theoretically risk-free assets – US treasury bonds or bonds issued by US public institutions that yield almost nothing in this period of free money.

“We may have found our Enron”

This is to neglect the risk linked to rates: since March 2022, the Fed has raised its rates sharply. They are now above 4.5%. Logically, the market value of Treasury bonds held by the bank has fallen, because, when rates rise, operators buy new, more profitable securities and sell those that yield almost nothing.

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