(News Bulletin 247) – The American authorities took action over the weekend to avoid a bank panic following the setbacks of Silicon Valley Bank and Signature Bank. But the market nevertheless fears that other small banks could in turn be hit.

Fear wins the markets on Monday. All the stock markets are suffering, scrutinizing the evolution of the file linked to the bankruptcy of the American bank Silicon Valley Bank (SVB), a Californian establishment which has suffered a rapid melting of the deposits of its customers, tech companies, which have themselves been hurt by the rise in market interest rates. In parallel, the authorities have decided to close Signature Bank this weekend. The CAC 40 fell by more than 3% on the Paris Stock Exchange around 10:30 a.m., the DAX 40 also lost more than 3% in Frankfurt.

The banks are suffering again Societe Generale loses 6%, BNP Paribas drops 5.7%. In Frankfurt Deutsche Bank drops 4.3% and Zurich Credit Suisse plunges 14.3%. In reality, it is all cyclical stocks that have suffered: auto parts manufacturers Faurecia and Valeo are dropping 9% and 7% respectively.

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An enduring stress

Many voices were raised to rule out the risk of contagion to larger establishments. “There is no specific alert on the French banking sector,” said the Minister of Economy in France, Bruno Le Maire. “French banks are solid, the French banking system is solid,” he added.

“We do not view the SVB bankruptcy as a ‘canary in the coal mine’ for European banks, given the unique nature of its business,” Jefferies said in a note to clients on Friday. The bank refers to the fact that the canaries in the coal mines warned of gas leaks leading to an explosion.

However, “banking stress persists, even if we are clearly not in the scenario of 2008-2009”, observes Alexandre Baradez, market analyst at IG France. The American authorities were strongly activated during the weekend to avoid the risk of a bank panic “which is a positive element”, he underlines nevertheless.

Guarantee of all deposits

The United States closed SVB on Friday, placing it under the control of the deposit guarantee agency (FIDC) and is also trying to find a buyer for this establishment. They have decided to guarantee all the deposits of this failed bank. This is an emergency measure because normally the FDIC guarantees deposits up to 250,000 dollars, but 96% of SVB’s deposits exceed this limit. According to Capital Economics, the FDIC’s deposit guarantee fund is over $128 billion.

In addition to SVB, the American authorities will allow access to all the deposits of another establishment, Signature Bank, which was closed automatically by the regulator, to everyone’s surprise, according to a press release.

The Federal Reserve (Fed) has also introduced a new loan facility to ensure that weaker banks have the liquidity to meet their customers’ withdrawal requests. What Deutsche Bank considers a form of “quantitative easing” (quantitative easing).

Beyond the fragility of certain parts of the banking system, this episode also shows the repercussions of monetary tightening by the major central banks;

“The SVB file reveals first and foremost poor management, but this event probably would not have happened if we were not in a period of rate hikes by the American Federal Reserve (Fed), which reveals banking fragilities, continues Alexandre Barandez: “The fear does not relate to the big banks but to the American regional establishments which it is feared will in turn experience difficulties and that they will be forced to sell assets”.