The banking crisis forces an emergency meeting of the ECB, which sees no contagion

A dizzying week at the headquarters of the world’s leading banks. No one imagined that the collapse of a small American bank (Silvergate) would cause a global financial upheaval. But that’s how it was.

The parent company Silicon Valley Bank (SVB) he officially declared bankruptcy on Friday. The entity ended up in bankruptcy due to liquidity problems, but the US authorities guaranteed all its deposits.

in SVB US First Republic Bank could follow. Despite the fact that eleven major financial institutions agreed on Thursday to inject 30,000 million dollars into it, the bank failed to catch air and at the end of this issue it collapsed almost 27% on the stock market. Eight out of ten dollars of capitalization has disappeared from their balance sheets in the last month.

The tsunami arrived on this side of the Atlantic. He the second largest Swiss bank, Credit Suisse, dies despite the intention of the authorities of that Swiss country to save him. The problem is its enormous size. The entity requested 50,000 million euros to keep the window open. His assets are estimated at more than 537,000 million euros (70% of the wealth that Switzerland produces in one year). Figures that are hard to digest, especially considering that its leadership has admitted to making up the accounting figures. That is why alternatives are sought. One of them is that its big rival UBS is absorbing the bank. Doubts about the latter sank again this Friday Credit Suisse on the stock exchange 8%.

The situation is delicate because it is a bank of global systemic importance. This means that bankruptcy could drag down economies and other players in the financial system. There are only 22 entities above Credit Suisse with more toxic potential.

Although central banks and the sector are trying to instill confidence, investors are restless. Clients of investment manager Charles Schwab, for example, moved $8.8 billion from their hedge funds to sovereign wealth funds in just three days, seeking protection, according to Bloomberg.

Not only these developments are worrying, but also the stock market’s punishment of other banks, which closed almost everywhere this Friday in the red. LAn uneasy situation at the headquarters of the European Central Bank (ECB). So much so that its Supervisory Board, headed by Andrea Enria, met this Friday in an extraordinary way — for the second time this week — to assess the turbulence in the markets. Just two days earlier, they asked eurozone banks to review their exposure to the Swiss entity, given its possible bankruptcy.

“French and European banks are extremely solid,” reiterated this Friday the governor of the Bank of France, François Villeroy de Galhau, who attributed the crisis to “bad risks” exposed by Credit Suisse in recent years, and not because of the illiquidity of the banking system, intensified after the 2008 financial crisis. The nervousness forced German Chancellor Olaf Scholz to intervene: “There are no signs of a new crisis in Germany and Europe,” he said this Friday. It is true that analysts are seeing some signs. They point out that the transition from a scenario of excessive liquidity to another scenario of sudden credit rigidity can lead debtors, and thus banks, into trouble, creating mistrust. Not to mention the dampening effect that the financial crisis can have on the United States. There, the Federal Reserve window is pumping out loans at levels not seen since the crisis of 2008. As long as deposit fees are far from the profitability of government bonds, withdrawal requirements will continue to rise.

The situation leaves the ECB without many options. On Thursday, the price of loans rose by half a point, to 3.5 percent. Inflation – in the Eurozone, according to Eurostat, reaches 8.5 percent – is still far from the goal (2 percent) and it is increasingly difficult to calm it down. The core value, which excludes energy and fresh produce prices from the calculation, ended February at 5.6%, a historic low. And that after six consecutive interest rate hikes. Because The ECB evokes the dreaded “second round effects”. Lagarde warns that maintaining widespread public assistance, wage increases and expanding business margins are putting spokes in the wheel of her monetary policy, designed to cool demand. The impact of these three factors in a highly liquid environment, fueled by the cheap money injected into the economy by the ECB in recent years, be afraid of the baptized as “second round effects”, that is, that support measures aimed at maintaining purchasing power and demand end up causing an even bigger problem of chronically high inflation.

“This is not 2008”

Organization for Economic Cooperation and Development (OECD), he supported the ECB’s decision this Friday: “Monetary policy should remain tight until there are clear signs that core inflationary pressures are easing permanently.” Moreover, he believes that both in the United States and in the Eurozone, “further increases in interest rates are still needed.” This was stated by its experts, before admitting that this strategy will limit growth in the bloc and could, ultimately, cause banking problems: “Increasing tensions in households and companies, and a greater possibility of defaulting on loans, increase the risks of possible losses in banks.” , he admitted. Its chief economist, Álvaro Santos, insists that “this is not 2008,” but admits that “there are risks and there are some episodes of financial instability that could potentially continue.” Of course, he sees no systemic risks.