SVB collapse: are the banks under control?

The Financial Times hopes this will be a salutary shock for the financial world:

“The big issue is not what is going to happen to the economy, but what is going to happen to finance. One point is that it is a good thing if fear has reignited in the financial system. The anxiety created by small shocks makes big crises somewhat less likely. There are additional lessons: banks remain as vulnerable to runs as ever and, like it or not, uninsured depositors will not be wiped out in a failure. Confidence that deposits are safe is just too important, economically and politically. ... Banking needs radical change.”

Rzeczpospolita predicts a wave of start-up closures:

“The bankruptcy of a bank that finances companies in Silicon Valley will undermine confidence in the sector and turn off the money tap. While big companies like Facebook, Google, Apple or Amazon will somehow make it even if they lose billions of their market capitalisation, smaller companies and startups may not survive - and this will cast a shadow on innovation in the global economy.”

For El País, the collapse bears the mark of Trump's legacy:

“Despite all the regulatory rounds that followed the 2008 crisis, the US remains the country with the largest excesses in the banking sector. President Obama promoted the Dodd-Frank Act, which established requirements for stress tests, risk committees and capital and leverage ratios for banks. With the arrival of Donald Trump in the White House these requirements were relaxed, and this seems to have contributed to the current crisis. The US authorities have a twofold task: they need to analyse what went wrong in terms of supervision and, secondly, they need to tighten up regulation of the sector once more to prevent more such episodes.”

The Irish Times says:

“SVB and other small and medium-sized US lenders successfully lobbied for looser regulation, which was introduced during the Trump presidency. The price of this decision - and of greed and incompetence by the bank’s management - is now being paid. ... The longer-term implications of this will take time to play out, but it sends a clear message to regulators. Tough and appropriate regulation is vital. The financial sector has complained about the burden of regulation, but talk of 'light-touch' oversight of smaller US lenders raises uncomfortable echoes of Ireland in the run up to the crash.”

Three lessons can be learned from the shock, Corriere della Sera explains:

“First, that such a crisis could hardly have occurred in the European Union thanks to the more careful regulations to which our banks have been subjected for several years now. Secondly, that we must distinguish between liquidity crises and insolvencies. The SVB had a liquidity crisis and liquidity crises can easily be contained through central bank intervention. ... Thirdly, that volatility is characteristic of financial markets. This needs to be monitored, but trying to eradicate volatility would be a mistake because that would set the goal of banishing all risk, which is, however, an essential aspect of innovation.”

The Handelsblatt sees the current bank failures as a symptom of an economic turning point:

“The return of inflation heralds the end of an era after almost 20 years of extremely low and partly negative capital market interest rates. The turnaround on interest rates means that risks are now being priced back into the system. This process is necessarily accompanied by frictions and in some cases bankruptcies. Some call it a shakeout. One thing is certain: the real acid test is yet to come.”

De Volkskrant hopes that the negative consequences will be manageable:

“The biggest worry is that the world will now have to foot the bill it had put off paying for so many years thanks to low interest rates. The impact of the 2008 financial crisis remained limited because governments came to the aid of ailing banks. Because central banks in the Western world were quick to lower their interest rates after these interventions, a debt crisis was prevented. ... But there were always warnings that this was a very risky strategy. ... Should the financial crisis spread, central banks will probably be compelled to cut interest rates again. We can only hope that inflation will have subsided by then.”

The US Federal Reserve must not deviate from its interest rate policy now, warns the Neue Zürcher Zeitung:

“Even if the taxpayer doesn't lose money directly, a completely different threat is looming. Rumours are already circulating that the US Federal Reserve could slow down its interest rate hikes to avoid getting more banks into trouble. But if the Fed eases off in the fight against inflation now of all times, the damage would be far greater than the collapse of a few non-systemically important banks.”

The US Federal Reserve's monetary policy bears some of the blame for this fiasco, interjects economist Domenico Sinisclaco in La Repubblica:

“The negative consequences [of the latestet interest rate hikes] for individual banks were foreseeable, especially if they had financed companies in the early stages of their existence. ... As interest rates rose, the value of the bonds on the SVB's balance sheet began to fall more than at other banks. The bank's capital was not sufficient to absorb this loss in value. So the management, which certainly made mistakes, began selling the bonds below the issue price to raise 2.7 billion dollars in new capital with the help of Goldman Sachs. ... But instead of boosting confidence these two common measures triggered panic.”

The web portal Documento is alarmed:

“So we have arrived at 'Black Friday' for the banks, as it has been called, which has led to initial nervousness on the markets, and now all eyes are on the opening of the markets on Monday [today]. All this amid fears of a domino effect of (negative) developments, raising the question: Did we learn 'our' lesson from the 2008 crisis? In any case, the skeleton remains in the closet. Along with memories of a crisis that never ended.”

The Frankfurter Allgemeine Zeitung argues that it would be premature to see the bankruptcy as the start of a new financial crisis:

“The SVB's collapse is due to a fundamental misjudgement on the part of its management. The idea was impressive: deposits were put into long-dated bonds, which seemed attractive in times of low interest rates. However, this business strategy didn't work out. ... Would it be wise to dismiss this failure as an isolated phenomenon? Again, the answer is no. It will soon become clear which bank has similar interest-rate explosives on its books. The answer to the question of whether the regulations that emerged from the financial crisis, often criticised as too harsh, were actually strict enough will be show whether a financial crisis 2.0 is looming.”

Governments must not repeat the mistakes of 2008, warns The Daily Telegraph:

“Depositors have to be protected, and with public funds if necessary. If you have money in the bank you need to be able to get it out. Anything else guarantees a full-blown collapse in confidence in every form of financial institution, and very quickly in paper currencies as well. But unlike 2008 and 2009, the banks themselves should be closed. If bondholders and shareholders lose their shirts, then that's just bad luck. We can't return to bailing out failed bankers all over again.”

Webcafé is not surprised by the collapse:

“Investing in start-ups that accumulate huge sums of money without producing anything works as long as you can get cheap financing - which is, however, no longer the case since the Fed raised interest rates. It is also dangerous in the real economy when interest rates start to rise, but there you are protected by the intrinsic value of the goods and services you sell. ... But for a startup with an idea for a dog food home delivery app, the increase in interest rates can be the end of the road because its only income is new investment in that idea. It's not worth anything in and of itself.”