On Friday, Californian regulators shut down SVB, which became the largest US bank to collapse since the 2008 financial crisis. SVB's collapse is believed to be linked to the increase in interest rates by the Federal Reserve System, which caused the impairment of assets on the balance sheets of many financial institutions, and to poor risk management. On Sunday, authorities closed New York-based Signature Bank because of systemic risks, which was the third largest bank failure in US history. On Monday, European Commissioner for Economy Paolo Gentiloni said that Europe did not see serious risks for its financial system amid the collapse of US banks.
"In Europe, despite the reassuring words of Bruno Lemaire, the French Minister of Economy and Finance and all the finance ministers, the general slide continues on the markets, financial stocks in the lead … To reduce the very high inflation, rates must be raised, but this will hit the member states hard. Banks loaded with government bonds will suffer. Bank reserves are primarily in government bonds. This is the systemic risk: our politicians have loaded the financial sector with government bonds to hide the growing budget deficits. All this has weakened the system which is based on trust. If trust disappears, the bonds collapse," Gave said.
The expert noted that the decision by the US government and the US Federal Reserve to guarantee the withdrawal of all deposits at the SVB had calmed the panic among US investors.
However, Gave believes that the US dollar is becoming an increasingly unreliable currency and this decision will not help the United States at a time when the world is deciding to start trading in other currencies.
"It is very difficult to stop a panic. That is why the Federal Reserve went well beyond the rules, compensating all depositors, instead of limiting itself to $250,000. There are between 10 and 20 US banks that show red flags, similar to those shown by the SVB," the expert added.
Gave concluded that the faith of European authorities in the ability of their banks to protect the bloc from a systemic shock might not be justified, as systemic risk had increased significantly, due to the fact that most of the banks' reserves were in government bonds.