Financial sector: turbulence around US banks - situation calms down

After the violent turbulence surrounding US banks in the past few days, the situation on the financial markets calmed down on Tuesday.

Financial sector: turbulence around US banks - situation calms down

After the violent turbulence surrounding US banks in the past few days, the situation on the financial markets calmed down on Tuesday. While bank shares such as those of Deutsche Bank and Commerzbank stabilized after sharp price losses, government bonds began to recover. The German leading index Dax, which crashed on Monday, rose sharply to over 15,200 points, boosted by a slowdown in inflation in the USA. Chancellor Olaf Scholz (SPD) made it clear that he sees no greater risk for investments in Germany.

There was initially no further bad news about the collapsed Silicon Valley Bank. The crypto market, which collapsed due to the collapse of cryptocurrency-focused bank Silvergate Capital, also recovered. Bitcoin rose to around $26,500, the highest level since mid-2022.

After turbulence in the US banking market, experts are now turning their attention to the major central banks, which are due to make interest rate decisions in a few days. Market participants are counting on the central banks not tightening their monetary policy as much as investors recently feared in the fight against high inflation.

The Californian Silicon Valley Bank (SVB), which specializes in start-up financing, was closed on Friday after a failed emergency capital increase and placed under state control - as was Signature Bank from New York. During the low-interest phase, the Silicon Valley Bank had invested a lot of money in long-dated US government bonds, for example, which lost value with the turnaround in interest rates. At the same time, customers quickly withdrew large amounts of money from the bank.

The collapse of the Silicon Valley Bank had sent shock waves through the financial markets and awakened memories of the global financial crisis, even if experts have not yet seen a danger like that of the time. In response to the collapse of the bank, the US government announced that all deposits with the bank would be secured.

The US Federal Reserve (Fed) announced an internal review after growing criticism in the wake of the largest US bank collapse since the 2008 financial crisis. "The events surrounding the Silicon Valley bank call for a thorough, transparent and timely investigation," said Fed Chair Jerome Powell on Monday evening.

Chancellor Scholz said the financial authorities had reacted clearly, sharply and quickly. This shows "that this situation is being monitored very closely". "That's the best thing you can do to ensure the safety of plants. In that respect, there's really no reason for anyone here in Germany to worry." Scholz also emphasized that since the financial crisis of 2008 and 2009, considerable progress has been made in financial supervision, but also in bank management. "We learned," he said.

According to Giannis Stournaras, the head of the central bank of Greece, the collapse of the Silicon Valley Bank will not cause any problems in the euro zone. "We don't see any impact of the SVB on eurozone banks, nor on Greek banks," Stournaras told the Kathimerini newspaper (Tuesday). The US authorities' response to secure SVB deposits has been swift and effective to avoid a possible panic, said Stournaras, who is a Governing Council member of the European Central Bank.

Meanwhile, the savings banks in Germany do not see billions in write-downs on securities holdings as a cause for concern. "Currently I don't know of any savings banks that are in trouble," said the President of the German Savings Banks and Giro Association (DSGV), Helmut Schleweis, on Tuesday in Frankfurt. "The savings banks have the strength to bear such depreciation."

Meanwhile, the German start-up industry was optimistic that the consequences of the collapse of the Silicon Valley Bank for the local start-up industry would be limited. "It's not originally a start-up crisis. It's a bank's refinancing problems," said Christian Miele, chairman of the Federal Association of German Startups. "I am confident that venture capitalists will not show any major reluctance."

It is uncertain whether the major central banks will change their interest rates as a result of the banking turmoil. The European Central Bank (ECB) will decide on its monetary policy this Thursday, and the US Federal Reserve will follow in just over a week. Statements by the Fed last week that it intends to increase key interest rates in larger steps in view of persistent inflation unsettled investors. With the turbulence surrounding US banks, interest rate expectations on the markets have fallen significantly.

A rate hike by the Fed of 0.5 percentage points, which was thought possible before the turbulence, seems hardly imaginable at the moment. A smaller hike or even a pause in interest rates is likely to be more realistic. Bank economists disagree, however.

High inflation in the US moderated in February. Consumer prices rose 6.0 percent year-on-year, the Department of Labor said in Washington on Tuesday. The Fed should be very happy with the development right now, because the turbulence in the US banking sector is a stumbling block for further interest rate hikes. Some economists recently accused the Fed of raising interest rates too much - and thus the crisis surrounding the SVB to have conjured up with.