No parallel in country’s banking system’ to causes of US collapses

  • Lusa
  • 14 March 2023

Silicon Valley Bank (SVB) on Friday announced bankruptcy; since then Signature Bank has also closed its doors.

The Portuguese Banking Association (APB) said on Monday that the situation that led to the collapse of two US banks in recent days “has no parallel in the functioning of the Portuguese banking system” and so cannot be extrapolated to the country.

When asked by Lusa about the possible impact on Portugal’s financial system, an official source from the APB said that “the situation that led to the collapse of American banks has no parallel in the operation of the Portuguese banking system, so it is not extrapolable to it.”

Silicon Valley Bank (SVB) on Friday announced bankruptcy; since then Signature Bank has also closed its doors.

Based in Santa Clara, California, SVB specialised in the technology sector and did business mainly with startups.

Portugal’s minister of finance, Fernando Medina, also said earlier in Brussels that the European banking system is not comparable to that of the US, since it is “more robust” and with “tighter rules” – in comments on the bankruptcy of SVB.

“The European banking system is subject to the supervision of the European Central Bank,” he said in statements on his way into a meeting of the Eurogroup of euro-zone finance ministers. “It has tighter rules [than the US], it is much more robust, supervision and regulation have undergone a big change in these years post the [2013] financial crisis.

That view was also expressed by the Eurogroup’s president, Paschal Donohoe, who said that there the European banking system had was “no direct exposure” to the SVB bankruptcy, while adding that the collapse of the Californian bank is “a reminder” of the need to ensure that banks are resilient.

Just before the US market opened on Monday, President Joe Biden said that “Americans can have confidence in the soundness of the banking system.”

On Sunday, the US authorities announced that they would guarantee the withdrawal of all deposits from the failed Californian bank and also that they would also allow access to all deposits from another establishment, Signature Bank, which was closed by the regulator.

In addition, the Federal Reserve – the US central bank – has pledged to lend the necessary funds to other banks so that they can meet clients’ requests for withdrawals.

The prospect of the Fed slowing the pace of interest rate rises due to the difficulties experienced by some banks did cheer investors.

In the UK, the government announced that the local branch of SVB had been sold to UK banking giant HSBC, for a token £1.

“SVB’s UK customers can access their deposits and banking services as normal from today,” the Treasury said in a statement.

SVB’s situation illustrates the turmoil throughout the US banking system in the face of the tightening of monetary policy to which the Fed has said it is committed, with rising US interest rates prompting customers to put their money into financial products that guarantee better returns than current accounts, so drying up a crucial source of funding for the new technology sector.

This wave of bank withdrawals last week posed major difficulties for three banks: the SVB, Signature Bank, and Silvergate Bank, a smaller institution that is known to have close links with players in the cryptocurrency sector.

The US authorities are now trying to find a buyer for SVB as soon as possible.