The failure of the American bank will also be felt on the old continent

Less than a week ago, the Silicon Valley Bank’s (Svb) Twitter account shared a post in which it said it was ‘proud to be listed for the fifth consecutive year in Forbes’ annual ranking of America’s Best Banks’. Today that account no longer exists. Along with, as is well known, the Santa Clara, California-based bank. Its failure – declared insolvent last Friday, 10 March, the second largest in U.S. history – has had such repercussions that it has led to the closure of another banking institution: the Treasury and the Federal Reserve have also shut down the Signature Bank of New York, itself the third largest financial collapse in U.S. history.

Experts averted the hypothesis of real risk for the world banking system, but the alarm went off anyway. After the immediate intervention of the Biden government – which promised the repayment of all deposits up to 250,000 dollars – Europe witnessed a dramatic reopening of the markets, with the biggest drop since December across the continent. Some governments expressed concern about the repercussions on the tech startup market (with which Svb had formed a strong partnership) and on some pension funds. Only last week, a few Europeans had heard of Silicon Valley Bank, but the bank had branches in Germany, Sweden and Denmark and was strongly active on the ground.

The fallout in Europe

The Polish mobile games developer Huuuge Games, for instance, declared that around 10% of its capital was with Svb at the time of the bankruptcy, while Sweden’s largest pension fund (Alecta) was its fourth shareholder, with holdings worth USD 605 million. The U.K. also ran for cover, with London-based giant HSBC announcing the purchase with immediate effect of the bank’s U.K. branch for the symbolic price of one pound.

According to the Financial Times, it managed deposits of nearly £7 billion, serving about a third of the ‘innovation economy’ of the entire country. While the U.S. authorities rushed to contain the consequences of the collapse, British Prime Minister Rishi Sunak, on his way to California to meet Joe Biden, rushed to find a lifeline for the hundreds of startups that depend on the bank for funding. The British Finance Minister, Jeremy Hunt, spread the news, speaking of a private arrangement ‘favoured’ by the Bank of England.

Meanwhile, in Germany, the market regulator froze the activities of Svb’s German subsidiary, issuing a ban on divestments and payments: Berlin stressed that the subsidiary was not a systemically important node and in no way threatened the country’s financial stability. The same concept was expressed by French Finance Minister Bruno Le Maire (“no specific alarm for France”) and, from a European perspective, by European Economy Commissioner Paolo Gentiloni, who spoke of a “predictable impact” on stock exchanges: “We don’t see a specific risk of contagion, of course we are monitoring the situation in close contact with the ECB.”

It looks like 2008, but everything is different

Overseas, we have not seen such excitement since the 2008 crisis. But it is not the same. The earthquake that hit Silicon Valley Bank fits into a well-defined perimeter. Its epicentre was founded a few years back when an ironclad partnership between banking institutions and startups active in the tech sector was forged in California Silicon Valley. It was a partnership nipped in the bud by the intoxication generated by zero interest rates. When they (recently) started to rise again, it dried up the huge yield-seeking liquidity that had come about. This has also affected a number of European entities, albeit in a minor way.

Britain is the country most affected outside U.S. borders, but it has moved abruptly to stem the risks. Meanwhile, a suspicion has begun to stir in some circles of European finance: that the “rift” may not expand to the old continent but, nonetheless, presage a U.S. economic crisis. This was made clear by George Saravelos, manager of Deutsche Bank: “We are looking at Fed cuts rather than hikes, the yield curve is steepening sharply. This is all consistent with an impending recession in the United States.”