The end of cheap money plunges banks into an unpredictable crisis after the collapse of SVB

• The ECB and the failed rescue of First Republic reactivate the banking panic and
• Why are Spanish banks the hardest hit on the stock market after the collapse of SVB?

Lehman Brothers was too big to fall and fell. Royal Bank of Scotland (RBS) was too big to fall and fell. Northern Rock wasn't so important that its downfall had systemic effects, and it did. And the same thing happened with Bear Stearns. No one saw the coming one coming in 2008 and the financial system at that time went bankrupt. Everyone who should have watched, from regulators to supervisors to rating agencies, ensured that the risks were

controlled and that the entities were solid and strong and, nevertheless, many fell apart. 15 years later, the shadows of that

Financial revive today before the

Banking whirlwind

that has unleashed the collapse of

and fears that it will happen again.

The stock market chaos of the past week leads many to question whether the necessary lessons were really learned from that episode. Then there were bad practices on the part of the entities, granting of loans without precautions, operations with complex products and lack of adequate supervision and regulation. But the stock market crashes of entities these days have nothing to do with a regulatory failure. The crisis has put the

Cracks through which the consequences of years of ultra-lax monetary policies and liquidity at the gates begin to emerge, whose consequences seem unpredictable.

The main central banks around the world – with the US Federal Reserve (Fed) at the head – took out their monetary arsenal in the wake of the hecatomb of 2008 and the sovereign debt crisis of 2012, in the case of the Eurozone. The result has been more than a decade of easy and cheap money with interest rates at historic lows that have conditioned the functioning of the economy.

In 2020, when those same central banks were preparing to undertake the withdrawal of stimulus, the Covid-19 pandemic arrived and, far from turning off the tap, they opened it even more. The result is a

that the monetary governors are trying to tackle with record rate hikes. Cheap money is over, but its consequences have barely begun.

Larry Fink

, the all-powerful chairman of BlackRock (the world's largest fund manager), warned earlier this week in his annual letter to investors about those effects and blamed the Fed's monetary policies for the recent banking crisis in the US. "We do not yet know the consequences that cheap money and regulatory changes will have on U.S. regional banks and are likely to see more convulsions and closures," he wrote.

Shadow banking

For the moment, the crisis of the last week has taken Silicon Valley Bank ahead and has led to the rescue of First Republic Bank and

to Credit Suisse in Europe

. The fall of SVB was the origin of everything and the causes must be sought in a liquidity mismatch after the massive withdrawal of deposits and the depreciation of its long-term bonds. His case may not be the only one, as Fink also warns in his letter. "Years of interest rate cuts led asset managers to increase their exposure to illiquid investments, sacrificing some liquidity in exchange for higher returns. There is now a liquidity risk for the owners of these assets, especially for those who are more leveraged."

Analysts, regulators, supervisors and political leaders have been determined this week to stress that the situation of large banks in Europe and the US is not worrying, that they are well capitalized, with robust balance sheets and solid liquidity positions. Central banks have shown their willingness to intervene if necessary, but their

The Federal Reserve and the ECB face the crossroads of choosing between reducing inflation or propping up the financial system, knowing that the formula for limiting prices – raising rates – puts more pressure on bank stability. The Fed's meeting this week should give clues in this regard.

Jérémie Boudinet,

Head of Investment Grade Credit at La Française AM, provides an angle that goes beyond the visible. In his opinion, the regulatory changes that emerged since 2008 (Basel III, among others) and the years of monetary expansion have pushed entities to seek better returns in so-called shadow banking, that is, in less supervised and less regulated financial activities (which at the same time pose greater risks).

"Years and years of low rates, unconventional monetary policies, and fiscal stimulus have fed the shadow banking sector into a monster with many difficult, if not impossible, areas to control. It's impossible at this point to say which domino can fall next." It is there, in that shadow market, where financial markets and regulators should pay attention and that is where one of the greatest risks for banks is concentrated, because of the unknown nature and size.