with its bankruptcy Silicon Valley Bank (SVB), the beginning bank stormthen collapse Credit Suisse (CS), liquidity Focusing on deposits, most savers’ favorite product because of their low risk, was the trigger, signaling tensions in financial institutions as fears about their position worsened.
In both cases the keys were: exit velocity of the beds and the settlement pattern of the slump. In the case of BLS, unmitigated collapse; Selling to a competitor in CS.
Considering the increasing volatility in the market and the uncertainty created by fear, the investors We spent weeks analyzing the liquidity of major banks.namely the ability to get rid of sediment leaks.
With negative interest rates, time deposits have disappeared, and after normalization, small and digital establishments repurchase them, while large banks – paying more attention to income statements than compelling demands from disgruntled customers – are resisting paid deposits, defending their consistent liquidity positions. .
In search of greater security in theory, the first flight of deposits from the smallest banks to the largest banks took place. “Flying to quality” – “leaping to quality” – refers to the defensive strategy of investors neutralizing positions in risky assets (stocks) and creating hedges (treasury bonds, gold and dollars).
Unlike the SVB (95% of its deposits are not covered by the US deposit fund, which only insures up to $250,000), in large Spanish banks –retail business model– The Deposit Guarantee Fund covers 50% and 60% of deposits and guarantees up to 100,000 Euros per owner and institution, which reassures clients and can smooth out quick big moves if needed.
in Spain, average return on deposit -most conservative household savings- far from the rest of the EU. According to the data of the European Central Bank (ECB), while the average cost of individual deposits is 0.21% in our country, this rate is 1.8% in other EU countries.
despite Bank of Spain (BdE) does not identify any liquidity problems or extraordinary deposit outflows in its reviews, the reason for the decline in volume being a banking stimulus – the transfer of liquidity customers have accumulated in accounts and deposits to mutual funds. And BdE concludes: The position of the major Spanish banks is strong in the face of possible contamination.
In a high-inflation scenario, some families – 18,000 million people left their homes in just two months – are forced to dive into their savings to face rising prices, pay off the mortgage or cover other expenses.
The most vicious ones sought alternatives as shelter. Because they are cash and safe securities – bonds or short-term bonds – reborn Monetary Funds (mutual funds that invest in very short-term, highly liquid, low-risk fixed-income assets) are considered a safe form of investing.
This us federal reserveprovide liquidity to facilitate bank financing for a period of one year in return for collateralizing their bonds with a mandatory repurchase agreement; and Avoid crashes like SVBs.
After successive periods (SVB, CS, Deutsche Bank) hit the stock market with European banks – with crashes of up to 12% in some cases – the crisis has something to do with investor confidence in the financial sector. In just one week, leading European organizations lost around 50,000 million euros in market value. Following the Biden doctrine: “Shareholders will not be protected; this is how capitalism works”, central banks have never considered a bailout for shareholders.
HE European Central Bank (BCE), Spanish banks devolving monetary policy to citizens. In other words, businesses stop toiling, start paying off debt, and include deposits in their offerings.
ECB in just six months rates from zero to 3.5%As a result, it seems plausible that savings would yield some return, along with the impact on credit and mortgages. Citizens with low purchasing power are far from finding deposit offers at large traditional banks.
The savings go to short-term fixed-income securities. With yields of up to 3% per year, it’s causing savers to flock to Treasury Bill auctions at the Bank of Spain.
That way, the withdrawn deposit goes to the Treasury, because when central banks raise interest rates too quickly and heavily, depositors pull out the money that isn’t making it to them, leaving it safely and at an interest that can no longer be ignored. in treasury bills.
While they haven’t gotten into the liability war yet, large corporations are launching new investment products as alternatives to Treasury Bills. Financiers and public institutions have a common goal: to protect liquidity—the money a bank holds to run its business—at all costs.
While central banks think that banks’ solvency and liquidity ratios are much better than the 2008 crisis, they impose special monitoring for liquidity because if not done it can lead to solvency problems.
Deviant correlation is a rapid and voluminous drop in an asset’s stock price, which instantly fuels deposit run-off until it makes the asset stand out.
In the SVB, the American authorities reacted late, with deposit escapes amounting to 37.2 billion euros on the day in question. In the case of CS, which was the victim of this inverse correlation, the decline (€35.4 billion in one week) was due to the business model, not a weakness in their assets because they were of good quality. “An ugly transaction that no one wantsbut it was necessary.” The last sign of tension was the Deutsche Bank stock market crash.
So what do we have left? Are we swamped with another financial crisis or not?
All data and messages from supervisors and regulators point to no. Both insist that there are no solvency or liquidity problems. Given the blow a confidence crisis can inflict, no one wants to appear weak. But what no one dares to deny is the existence of a terrible fear of deposits flying away, something very hard to bear.
now, The major Spanish banks are aware that the time to offer profitability for individual savings is approaching.although they may not seem very compelled to change strategy and sacrifice their margins.
When these are decided, it is foreseen that the return to the deposits that provide returns will be slow, attracting customers to whom other products can be placed will be at the forefront, small text will be accompanied, and it will be tried to compensate for the erosion experienced as much as possible. according to the margin.