A few weeks after the bankruptcy of Silicon Valley Bank and the collapse of Credit Suisse, one of the pillars of the Swiss banking system, several central bankers are drawing the first lessons...Banking crisis: central bankers draw the first lessons The US Federal Reserve building in Washington. AP - Patrick Semansky Text by: Myriam Berber 2 min A few weeks after the collapse of Silicon Valley Bank and the collapse of Credit Suisse, one of the pillars of the Swiss banking system, several central bankers are drawing the first lessons from this banking crisis. Advertising Read more The firs

Banking crisis: central bankers draw the first lessons

The US Federal Reserve building in Washington. AP - Patrick Semansky

Text by: Myriam Berber

2 min

A few weeks after the collapse of Silicon Valley Bank and the collapse of Credit Suisse, one of the pillars of the Swiss banking system, several central bankers are drawing the first lessons from this banking crisis.

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The first of these is the vice chairman of the Fed, the US Federal Reserve, in charge of banking regulation. "Thisbankruptcy is a textbook case of mismanagement." This is what Michael Barr explained on Tuesday, March 28, 2023, before the US Senate Banking Committee.

The Californian bank has not diversified its investments. It has invested heavily of its clients' deposits in safe investments, long-term US bonds. But when the US central bank began to change monetary policy and raise its key rates, these investments were no longer financially profitable, which led SVB clients to want to withdraw their money.

The risk of rising rates

The big mistake of the Californian bank was to forget to hedge against the risk of rising rates. The bankruptcy of the SVB is therefore nothing like the financial crisis of 2008. This is not a problem of toxic assets, as with the subprime crisis.

Before the Senate Banking Committee, Michael Barr, the vice chairman of the Fed recalled that "the bankruptcy of the SVB shows the need to make the banking system more resilient". He added that it is essential to strengthen the soundness of banks to "finalize the international banking rules of Basel III", a set of reforms launched in 2009 following the subprime crisis.

Under Basel III, many measures have been taken, but some reforms still need to be finalised, notably in the United States.

► Also listen: Why the fall of Silicon Valley Bank, the financial arm of tech, causes so much excitement

Banks under pressure

Fears also weigh on the other side of the Atlantic. A few days after SVB, it was the European bank Credit Suisse that collapsed, before being taken over by its compatriot UBS. And in recent days, it has been the turn of the German bank, Deutsche Bank, to be in turmoil.

In England, another banker spoke before a parliamentary committee. This is Andrew Bailey, the governor of the Central Bank of England who worked to ensure the purchase for one pound by HSBC of SVB UK, the British subsidiary of the Californian bank.

For Andrew Bailey, "the British financial sector is not in danger. But the Bank of England needs to stay on the lookout as investors test banks in the market." The same goes for the president of the French Banking Federation, Philippe Brassac, who assured that the notion of banking crisis in Europe was "irrational", recalling that "European banks were solid". Solid banks, but they remain under pressure, especially on the stock market.

Banking crisis: central bankers draw the first lessons

Banking crisis: central bankers draw the first lessons

The risk of rising rates

Banks under pressure

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