Subscribe here: https://bit.ly/eudebates European finance ministers and the EU's economics commissioner played down the contagion risk of the collapse of U.S. Silicon Valley Bank (SVB) while European bank shares saw their biggest rout since the start of Russia's invasion of Ukraine.
Subscribe here: https://bit.ly/eudebates The collapse of Silicon Valley Bank (SVB), the biggest bank failure since 2008, has sparked alarm across the world as governments try to assess its impact on tech start-ups, other financial institutions and even pension funds.
On Monday, US president Joe Biden assured Americans the nation’s banking system was safe, telling them: “Your deposits will be there when you need them".
US regulators announced steps on Sunday to protect customers and prevent more bank runs after they seized and shut down another struggling lender, crypto-friendly Signature Bank.
While SVB was the go-to lender for Silicon Valley venture capitalists and tech firms, including Etsy and Roblox, it also helped fund companies on the other side of the Atlantic, leaving them scrambling to figure out how to access their deposits and manage their finances.
Is Europe at risk of contagion?
SVB’s collapse has pummelled European bank stocks, despite assurances from Biden and other policymakers.
Paschal Donohoe, the head of the group of eurozone finance ministers known as the Eurogroup, said on Monday that Europe had “no direct exposure” to SVB.
Earlier, the EU's economy commissioner said the US bank's collapse did not pose a serious threat to Europe’s financial stability.
"I don't think we have a real risk of contagion at the moment in Europe," Paolo Gentiloni told reporters in Brussels, adding that the EU was "monitoring the situation in close contact" with the European Central Bank.
Antonio Fatas, Professor of Economics at INSEAD business school, said he didn’t see a systemic risk in Europe yet either from SVB’s collapse.
“The fundamental difference is the type of regulation and stress tests that we do in Europe are more strict,” he told Euronews Next.
In the US, when the Trump administration loosened regulatory requirements for regional banks in 2018, SVB found itself exempt from the strict liquidity regulations that were imposed on banks deemed “systemically important” in the wake of the 2008 financial crisis.
The changes effectively left SVB and other medium-sized banks as too small to be deemed "systemically important" and worthy of heightened scrutiny - yet clearly big enough to cause a market panic when they go bust.
“I think in Europe, we're a little bit more systematic when it comes to regulation. I think that's good news,” Fatas said.
“I think, unfortunately, banks have to be heavily regulated. That's the reality. Otherwise, we end up with one crisis after another”.
The Biden administration’s intervention and protection of deposits above the normal limit of $250,000 (€233,000) was the right thing to do and “the only way to stabilise the banking system,” Fatas said, adding he would expect authorities in Europe to do the same if a bank run were to happen.
“I know some people are very much against anything that looks like a bailout intervention of governments, but we do this every crisis,” he said.
“We always complain and we make a lot of noise. But at the same time, this is life when there's any risk to the banking system”.
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