Banks, opportunities and risks
The banking shock that began in California reminded the world that banks are businesses critically dependent on the trust of depositors and investors. But it has also allowed investors to distinguish between the types of risk that different banks are facing.
The banking shock wave has begun in the United States
The case Silicon Valley Bank it unfolded within days due to a combination of weak capital, low liquidity and concentration of deposits. Many of his clients were in the same industry and area and were prone to discussing their stock and making near-simultaneous withdrawals.
The ramifications of this collapse have not yet fully manifested themselves, but the financial world was quickly looking for other vulnerable institutions. Silvergate (a bank focused on cryptocurrencies) collapsed, with little compassion from US regulators, while Signature bank – another tech-focused bank with similar problems to Silicon Valley Bank – was taken over by liquidators. The risk of failure of US regional banks remains, with all eyes on First Republic.
Fear has arrived in Europe
Investor anxiety has intensified around the Swiss banking group Swiss credit and on March 19, UBS announced that it had agreed to acquire it. This ended several difficult years for the Swiss firm, which include its flawed risk management by Archegos Capital Management and Greensill Capital. These incidents have led to outflows from its esteemed wealth management business, with high net worth individuals withdrawing their assets en masse. In the days following UBS/Credit Suisse’s announcement, investors worried about other European banks and share prices fell across the sector.
Subscribe to the newsletter