Pandemonium and panic on the banking ship

Financial markets are still reeling from the recent events that shook the banking system. Three American banks went bankrupt and in Europe, Credit Suisse fueled fears of a potential contagion.

What a week! The market went through every possible emotion, especially nervousness and fear. It all started last week with Silvergate Bank. This institution, based in an upscale neighborhood of San Diego, California, was renowned for specializing in the digital currency market back in 2013. A bold choice, especially since at the time, few financial institutions wanted to engage in this novice sector with little regulation. The recent turmoil has taken its toll on the company, much like FTX, the platform that went under a few weeks earlier.

As one domino led to another, SVB bank, short for Silicon Valley Bank, went bankrupt. The 16th financial institution of the United States, is to date the largest bank failure in the country of Uncle Sam since Lehman Brothers in 2008. The very next day, the fall of this bank specializing in tech companies was followed by the collapse of Signature Bank, with $110 billion in assets.

Faced with the prevailing panic, and the fear of a crash like in 2008, American authorities intervened quickly (unlike in 2008 when the reaction was slow), guaranteeing all deposits.

In the wake of this, other banks saw their stock prices literally collapse, for fear that a bankruptcy would affect them as well. This includes Zions lost 40%, Keycorp 38%, Comerica 42% and especially First Republic, which dropped 75%.

At the same time, in Europe, Credit Suisse also faced headwinds, since depositors started to leave and its main Saudi lender refused to inject cash. It is not directly linked to the fall of its peers, as the Swiss bank faced problems of its own, but the US situation hasn't helped. The panic movement aggravated the fears around the already greatly weakened bank.  In the end, the Swiss National Bank had to intervene and allowed Credit Suisse to borrow up to 50 billion Swiss Francs, which saved the day.

It was an intense and rough week on both sides of the Atlantic. The banking system has seen dark red, but for now, the scenario of a generalized financial crisis like in 2008 seems to be averted.