Mexico City.- As if the specters of a recession in the United States and the fight against stubborn inflation were not enough, the world today faces yet another threat: the risk of global contagion from a possible depositor panic against banks.
First was the collapse of Silicon Valley Bank (SVB) last week in just a couple of days, which forced US regulators to go off script to support all of the $175 billion of deposits of the once-fashionable bank in the world of the technology.
The tranquility that this measure generated lasted just one day: Tuesday. Credit Suisse (CS) reported “material weakness” in its financial reports and the troubled Swiss bank in another couple of days sparked a new panic, now on both sides of the Atlantic.
By the way, CS’s problems have nothing to do with SVB’s: it made bad investments and has been in trouble for years.
Despite the fact that the large global banks are better capitalized since the 2008 crisis, the risk of contagion persists.
“A banking crisis can become a sovereign debt crisis and create a contagion phenomenon,” the renowned economist Nuriel Roubini warned last November, according to Fortune.
His words were prescient, for that is precisely the fear plaguing markets today, a fear that could affect the Fed’s fight against inflation.
To raise rates or not to raise them? Fight inflation or protect the banking system from runs and nervousness? These are difficult questions that will have to be answered intelligently while the world anxiously watches.
They face a dilemma: inflation or banks
With the bankruptcy of Silicon Valley Bank (SVB) in the United States, the concerns of international banks changed, from controlling high inflation to the fear that some institutions will not withstand the environment of high interest rates.
“We went from being enormously concerned with the issue of inflation and consequently raising interest rates to contain the inflationary momentum and that right now we are putting them aside with the concern that some banks are ‘touched’ and can’t stand this high interest rate environment,” said a senior financial sector expert.
He assured that although the disappearance of the SVB had a lot to do with its internal situation, it was also affected by the high rates.
According to José Carlos Sánchez, an HSBC analyst, it is likely that in the next monetary policy decision of the Bank of Mexico the latest increase in interest rates will be presented in the current context of bank failures in the US and the slowdown in inflation. .
Although the cycle of increases was expected to end in 2024, the bankruptcy of the SVB could bring it forward, he noted.
In fact, the National Banking and Securities Commission (CNBV) warned that Mexico could temporarily experience volatility in interest rates, especially those of bank securities, as well as in the exchange rate due to the bankruptcy of SVB.
“The bankruptcy causes of SVB would hardly be replicated in Mexico,” the CNBV said.
This is because the profile of SVB’s deposit portfolio was completely concentrated in technology startups and in Mexico the capture of banks is “diametrically” opposed and diversified, explained the Mexican regulator.
However, the outlook turned sour after Credit Suisse’s biggest investor said it could not provide it with more resources, sending its shares tumbling 24 percent in Europe yesterday, dragging other banks down in a climate of growing aversion. to risk.
Shares of Société Générale SA and BNP Paribas SA in France each fell more than 10 percent and Deutsche Bank AG in Germany fell 9 percent.
In the United States, the titles of JPMorgan Chase fell 4.72 percent, and those of Morgan Stanley by 5.09 percent.
The markets were also affected and the S&P/BMV IPC index of the Mexican Stock Exchange fell 1.15 percent, in the US the Dow Jones and the Standard & Poor’s fell 0.87 and 0.70 percent each.
London’s FTSE 100, Germany’s DAX and France’s CAC 40 fell 3.83, 3.27 and 3.58 percent each.
