The banking crises erupted in the last ten days, above all the bankruptcy of the Californian SVB and the difficulties of the Swiss Credit Suisse, have brought to mind the great financial crisis of 2008. Many have pointed to parallels between SVB and Bear Stearns, and then between Credit Suisse and Lehman Brothers. However, the truth is that the problems we are seeing today are of a very different nature, both in the origin of the crisis and in the health of the sector.
More regulation
“At the time of the global financial crisis, banks were far less regulated, over-leveraged and under-capitalised,” said Mark Dowding, CIO of BlueBay. which then triggered the collapse. In 2023, the banking landscape is completely different“.
In fact, lenders have been arriving for a year in which have recorded a significant increase in profits and margins are expected to increase further given the restrictive policy of the central banks, i.e. the increase in interest rates. Only considering the large Italian banks (Intesa Sanpaolo, UniCredit, Banco BPM, BPER and Banca MPS), the aggregate net profit for 2022 was 12.8 billion euros, up 66% on an annual basis (the increase it was 80% not considering exceptional items).
More resilient banks
During the week, in addition to having further increased the cost of money, the ECB also said the banking sector is resilient, with strong capital and liquidity positions. Vice President De Guindos said European banks’ exposures to small US banks and Credit Suisse are limited and unconcentrated, with no particular fragility.
Rating agency DBRS Morningstar noted that Old Continent banks, compared to failed ones in the US, generally have lower exposure to fixed income securities, more stable retail deposit bases and a regulatory framework that includes stricter interest rate risk management policies even for the smallest banks.
Optimism prevails
The ECB’s position assumes that the recent decisions of the Fed and the Swiss National Bank are sufficient to stabilize the markets and banks in crisis and to avoid any liquidity problems in European banks. If the position, from a rational and numerical point of view, makes sense, we must also consider that bank runs and liquidity crises can develop at a speed never seen before.
“The rise in interest rates has meant that the operating environment for banks is as favorable as it has not been for many years – explained Dowding – Furthermore, counterparty risk has been mitigated by centralized clearing of derivatives and therefore the weakness of one institution should not threaten another. However, the truth is that trust is everything at the foundation of the banking sector. If trust is compromised, it is difficult to restore“.
