Berlin, Brussels The problems seem far away, but the bankruptcy of the Silicon Valley Bank (SVB) also occupied the European finance ministers on Monday. At the Eurogroup meeting in Brussels, the supervisors from the EU Commission and the European Central Bank (ECB) reported on the tense situation on the financial markets.
The key question from the finance ministers’ point of view was: Could the bankruptcy of the US bank lead to problems for European financial institutions? The all clear was given for the time being. Eurogroup President Paschal Donohoe said the risk to the eurozone was “very limited”.
In Germany, the financial supervisory authority Bafin, among others, is constantly monitoring the situation. “These institutions left no doubt about the stability,” said Lindner before the meeting of the euro finance ministers. The Bafin on Monday imposed a moratorium on the German branch of the SVB in order to secure the assets for creditors.
After the bankruptcy of the SVB, the shares of European banks also came under pressure. Lindner did not want to comment on the price losses of German banks: “I cannot comment on market reactions.”
More on the consequences of the collapse of the Silicon Valley Bank
The SVB, which is considered the house bank of the start-up scene, got into trouble because of high losses on bonds. In principle, these problems can also occur in European banks, and they have been discussed for some time. But liquidity problems similar to those at the SVB are not expected so far. The financial regulator is now monitoring the situation more closely.
On Wednesday, the bankruptcy of the SVB and possible consequences for Germany should also be an issue in the finance committee. The Union faction has submitted an application and is expecting an assessment from the Ministry of Finance.
So far, the MPs are relatively relaxed. Since the SVB did not have any major activities in the euro zone, “the risk for Germany and Europe seems manageable from today’s perspective,” said the responsible rapporteur for the Union faction, Stefan Müller (CSU). And the financial expert of the Greens, Katharina Beck, said: “So far, the consequences for Germany can be assessed as very manageable.”
Criticism of the US relief effort
The US government’s relief effort is causing debate. Although the bank will not be rescued by the state, shareholders and certain creditors should not receive any tax money either, as the US Treasury Department emphasized. But at least the deposits are guaranteed by the government. Customers who have more than the 250,000 US dollars protected by the deposit insurance in the accounts of the SVB should also receive their money in full.
“The rescue of all deposits beyond the security limit is questionable in terms of regulatory policy,” said CSU politician Müller. “Such bailouts for banks with unsustainable business models should no longer exist today.” From the point of view of industrial policy, the step is understandable. Müller: “The USA is ultimately protecting its tech sector and Silicon Valley.”
Greens politician Beck also sees the bankruptcy of the SVB and the associated rescue operation as a warning: “The case shows once again how important a diverse banking and financial system is, so that the state does not always have to act as a kind of self-evident reinsurance and thus financial actors possibly take unacceptable risks.”
According to Ifo President Clemens Fuest, the US government is trying to prevent other financial institutions from going bankrupt. “The US government appears to be concerned that if SVB customers suffer losses, there could be a panic among deposit holders at small and medium-sized banks in the US,” Fuest said.
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In principle, owners and creditors should be liable in the event of bank failures, but implementation has repeatedly proved difficult due to the dangers to the stability of the financial system. After all, shareholders and certain creditors should now be liable at the SVB and no tax money should be used.
For the economist, the case underscores how important it is that the regulators demand a higher equity base from the banks. “This counteracts excessive risk taking, which is being reinforced by government bank bailouts and deposit insurance schemes,” Fuest said.
According to Florian Heider, director of the Leibniz Institute for Financial Market Research (SAFE) in Frankfurt, the classic case at the SVB occurred that a few large depositors exercised their “monitoring function” and withdrew their funds within a few days.
“Such a withdrawal of deposits becomes a problem when there is a bank run, which then spreads to other banks that are actually solvent,” says Heider. Rather, the case of the SVB shows where there are gaps in banking regulation.
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