The collapse of the Silicon Valley bank... billions in losses and a European reduction in risks

The aftermath of the collapse of Silicon Valley Bank (Silicon Valley SVB) led to the continuation of losses in global bank stocks today, Tuesday, and while the IMF welcomed America's "decisive" measures to address recurring banking risks, a European official confirmed that there was no "significant risk" to European banks.

The assurances of US President Joe Biden and other policymakers failed to calm the markets, and prompted a rethink about the future of interest rates.

Biden's attempts to reassure markets and depositors came after emergency measures in the United States to support banks by giving them access to additional financing failed to dispel investor concerns about the possibility of contagion to other banks around the world.

Bank stocks in Asia continued their losses, as shares of the large Australian banks “ANZ”, “Westpac” and “NAB” lost more than 2%, and the sub-index of the banking sector plunged in The Tokyo Stock Exchange rose 6.7% in early trading, its lowest level since last December.

losses and fears

Amid investor fears of additional collapses, US banks lost about $90 billion of their value in the stock market yesterday, Monday, bringing their losses during the past three trading sessions to about $190 billion.

A frantic race to re-estimate expected interest rate increases has also shaken markets, as investors are betting that the Federal Reserve (the US central bank) will refrain from raising interest rates next week.

Amid investor fears of additional collapses, US banks lost about $90 billion of their value in the stock market yesterday, Monday, bringing their losses during the past three trading sessions to about $190 billion.

And continued losses in the banking sector stocks at the beginning of the Asian trading sessions due to the collapse of the Bank of Silicon Valley, where the sub-index for the banking sector in the Tokyo Stock Exchange fell by 6.7%, while the shares of large Australian banks lost 2% of their value.

US regional banks incurred the largest losses, and First Republic Bank shares fell more than 60%, as news of new financing failed to reassure investors, and Moody's revised its rating of the bank down.

Indicators and developments

Yesterday, Monday, the European banking sector index closed down 5.7%, while German Commerzbank plunged 12.7% and Credit Suisse 9.6%, hitting a record low.

These developments come as EU Economic Commissioner Paolo Gentiloni confirmed yesterday that the collapse of the Silicon Valley Bank in the United States does not represent a serious threat to Europe, in light of investor fears of the possibility of contagion.

"The possibility of a spillover effect is something we have to watch, but I don't see it as a big risk right now," Gentiloni told reporters in Brussels, as European stocks fell sharply in afternoon trading.

For his part, Eurozone Finance Minister Paschal Donohue said that eurozone banks are not directly exposed to Silicon Valley Bank, and that eurozone banks are in good shape.

"The problems arise from a specific business model of Silicon Valley Bank, and the picture here in Europe is very different, our banks in general are in good shape," he told a news conference after talks with eurozone finance ministers.

"We have greatly strengthened it in recent years, and it is under close supervision from national and European authorities, and the Basel framework is applied to all EU banks, so there is no direct exposure to Silicon Valley Bank," he said.

The collapse of the Silicon Valley bank affected global markets (Getty Images)

Reassure and calm down

In the context of reassurance, French Finance Minister Bruno Le Maire told investors after bank shares fell in Europe, "Calm down and look at reality."

"The fact is that the French banking system is not exposed to Silicon Valley banks, there is no relationship between the different situations" in the United States and Europe, he added.

"We have strong banks, a strong banking system and a high liquidity ratio," he said, adding that French banking institutions were "very diversified".

In turn, Germany reduced fears of contagion from the collapse of the Silicon Valley bank, despite the decline in shares of German banks yesterday, Monday, on the Frankfurt Stock Exchange, as "Deutsche Bank" share lost more than 5% of its value, and its competitor, "Commerzbank" more than 10% in the middle of the day.

German government spokesman Steffen Heppestreit confirmed that he saw no resemblance to the 2008 global financial crisis.

"I don't think we are in a similar situation to what we were at that time," he said at a regular news conference.

The Federal Financial Supervisory Authority noted that "the critical situation of the German branch of Silicon Valley Bank does not pose a threat to financial stability."

Germany reduced fears of contagion from the collapse of the Silicon Valley bank, despite the decline in bank shares on the Frankfurt Stock Exchange (Reuters)

Welcome and follow up

Meanwhile, the International Monetary Fund welcomed the "decisive" move taken by the United States to reduce recurring risks to banking systems, and said it was watching the situation to follow the global consequences of the matter, after the collapse of the Silicon Valley bank.

The fund added in a statement via email to Reuters that it "welcomes the decisive steps taken by the Federal Reserve, the Federal Deposit Insurance Corporation and the US Treasury to address the recurring risks arising from recent bank defaults in the United States."

"International Monetary Fund experts are closely following the development of the situation and assessing the potential implications for global financial stability," he said.