![]() We also take some comfort from European banks’ experience through the challenges of the pandemic and war in Ukraine, which suggested they are well positioned in credit provisioning if the broader economic situation deteriorates. ![]() Europe’s regulators didn’t give smaller institutions a lighter touch in the same way, subjecting all banks to stringent liquidity and capital requirements. We think the outlook is somewhat different for European banks, though. Rather, they could face an expensive process of tighter regulatory scrutiny. We therefore don’t expect the backstop now provided by the US regulators, welcome as it is, to set US banks on an unequivocally investor-friendly course. But they also reflect the deregulation of smaller US banks since 2018, when they were exempted from some enhanced prudential standards. The troubles at SVB – and other banks like Silvergate or Signature – are in large part idiosyncratic, in our view, given their niche clienteles. The authorities acted over the weekend, guaranteeing deposits and introducing the Bank Term Funding Program to help banks avoid mark-to-market losses on their bond holdings. In brief, SVB faced an asset/liability mismatch as its predominantly tech-sector depositors began to ask for their money back – money which had been invested in longer-duration bonds whose prices had declined during the current hiking cycle. When Idiosyncratic Risks Lead to Systemic Headwindsīy now, it’s likely you are well acquainted with recent events at Silicon Valley Bank (‘SVB’).
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