Bank shares are experiencing one of their worst weeks in more than three years before the bankruptcy of two unrelated California banks, Silvergate Bank and Silicon Valley Bank. We have to point out that they are two very specialized banks, focused on loans to venture capital funds and cryptocurrencies. To understand the magnitude of the turbulence, if we look at the KBW nasdaq Bank Index, an index that claims to be a reference in the banking industry in the United States, has accumulated a drop of about 23% since March 6. In Europe the eurostoxx Banks Index has fallen 12% in the same period.
To analyze the two bankruptcies we must do it separately. In the case of Silvergatewe are talking about a bank strongly specialized in companies of the sector of the cryptocurrencies, which brought together institutional investors who wanted to invest in crypto assets, an activity that is far from that offered by traditional banks, and which presents a high risk. The FTX bankruptcy Already in December it left an impact that was difficult to save in the valuation of Silvergate’s assets; and since then, it has experienced a constant outflow of deposits that increased with the impossibility of presenting its results on time. One of the first to leave the bank was Coinbase. When a bank is so specialized in one type of asset and it presents problems, the risk of bankruptcy is high.
On the other hand, the case of Silicon Valley Bank is more complexthe bank specialized in venture capital investments, but the rise in interest rates has created a double shock in its income statement, on the one hand the appetite for financing at high interest rates has decreased, and on the other, companies, mostly ‘startups’, have begun to withdraw deposits (close to 15% of the total in the last two months) and use their treasury to allocate it to their activities without having to bear a high financial cost for it.
Given this uncertain scenario, the US authorities have reacted quicklyannouncing that the collection of all the deposits affected by the bankruptcies is guaranteed, thus trying to dissipate any risk of contagion in the sector and reinforce confidence to stop deposits from continuing to leave the rest of the most vulnerable entities. The impact of these two bankruptcies on the sector as a whole is not relevant, and is far from being systemic.
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In Europe no destabilization of the banking system is foreseen, since it is a solid sector, with healthy and diversified balance sheetsand with greater liquidity positions than American banks.
Now we will have to see if the rhythm of interest rate hikes scheduled by the Fedsince these two bankruptcies, which will surely make the shareholders of certain banks think, are an unwanted consequence of the increase in rates, which harm companies that depend heavily on bank financing, and therefore, specialized banks in these types of companies.