Opinion articles

Are we on the verge of a bank run-off in the US?

¿Estamos a las puertas de un run off bancario en EE.UU.?

Are we on the verge of a bank run-off in the US?

Silicon Valley Bank (SIVB) was closed today by the California regulatory authority. The bank, which was considered the 16th largest in the US, was part of SVB Financial Group, and had USD211 bn in assets, annual revenues of USD1.7 bn, and equity of USD16.2 bn. It had about 8,500 employees on its payroll. Its mission was to finance new ventures, mainly technological, and it was based in Santa Clara, California. Its chief executive officer was Greg Becker (CEO).

Although Morgan Stanley analysts assume that what happened with SVB is “an isolated case”, the Wall Street community fears that this is the beginning of other falls in the U.S. banking sector, whose margins have contracted as a result of the increase in interest rates by the Federal Reserve, which increases the cost of liquid resources. This, coupled with low capitalization and aggressive risk management associated with lending policies, has become a “Sword of Damocles” for the sector.

Back to too big to fail?

While the closing of the SVB occurs in record time, the eyes of the financial community turn to the Federal Reserve and its regressive monetary policy, whose risks associated with the banking and financial sector were clearly warned to Chairman Powell at the time.

This calls into question the possibility of further interest rate hikes (Fed Funds Rate), which would certainly aggravate the situation. A possible reduction in rates, on the other hand, puts in check the monetary struggle to lower inflation in the world’s largest economy. On the other hand, keeping rates at current levels would give relief to the financial industry, in a sort of “too big to fail”, provoked in a circumstantial and indirect way.

The reaction to U.S. monetary policy should be immediate.

Thus, what is critical at this time is that the Fed act “promptly and timely” since a fall of more participants would aggravate the weakened confidence in the banking sector, at a time that is certainly critical, not only for the US but also for the financial industry worldwide.

We will keep you updated on further developments.