Regulators urge calm to ease SVB contagion fears

European regulators have sought to bolster confidence in financial markets after the weekend collapse of US-based Silicon Valley Bank (SVB).

The European Central Bank said it would not be holding an emergency meeting of its banking supervisory board even as the demise of the California-based lender knocked banking shares on the continent.

The Single Supervisory Board, which oversees the European banking system, is understood to believe there is no direct impact from the SVB collapse on institutions in the eurozone, as long as the fallout didn’t create contagion issues for larger US banks.

Meanwhile, the Bank of England also moved to calm nerves, stating that “no other UK banks are directly materially affected by these actions, or by the resolution of SVB UK’s US parent bank”.

“The wider UK banking system remains safe, sound, and well capitalised,” it added.

Policymakers in the US and the UK, where SVB had a subsidiary, have moved swiftly to try and extinguish any fears about a more widespread impact on their respective banking sectors.

Germany’s Federal Financial Supervisory Authority (BaFin) has also issued a statement on the matter. BaFin’s statement read: “The distress of Silicon Valley Bank Germany Branch poses no threat to financial stability.

“According to the institution’s financial statements as at 31 December 2022, the total assets of the institution based in Frankfurt am Main amounted to €789.2 million.”

In the UK, all-night talks, involving Prime Minister Rishi Sunak and the Bank of England, led to HSBC acquiring SVB UK, which has 3,300 UK clients, for a symbolic £1.

Meanwhile in the US, federal regulators stepped in to back all SVB deposits – including those above the federally insured ceiling of $250,000.

Nevertheless, the UK’s FTSE 100 index and the Eurostoxx 600 fell more than 2% in early trading on Monday, with banking names dominating the top-10 fallers in both indices.

The collapse of the California-based bank is the biggest US bank failure since 2008, however, regulators have sought to highlight that the path to its downfall was company-specific rather than indicative of weakness in the wider system.

However, US regulators also took control of New York’s Signature Bank, which is roughly half the size of SVB and was a hub for cryptocurrency financing.

Signature’s troubles come in spite of a positive month for crypto assets, with data from Fineqia Research showing global exchange-traded products with cryptocurrencies as underlying assets witnessed a 1% increase in assets under management in February, hitting $28 billion, as the crypto market value increased by 1.5% during the same period.

Bradley Duke, co-CEO of digital assets exchange-traded product provider ETC Group, said: “The announcement by the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation that from today all depositors at Silicon Valley Bank (SVB) will have access to all their money reassures both traditional and crypto markets.

“Furthermore, it means that Circle, the issuer of the popular Stablecoin USDC, which holds part of the USD backing the coin at SVB, is now out of the woods, which is a huge positive for the crypto world.”

© 2023 funds europe



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