24 November 2023

The Dow Jones, after markets close, in New York, March 17, 2023.

A week after the bankruptcy of Silicon Valley Bank, the California start-up bank hit by rising rates, Wall Street was still in crisis on Friday March 17. This is not the time for the great financial debacle of 2008, but bailouts are multiplying without the American Federal Reserve (Fed), the Treasury and the Wall Street banks managing to definitively put out the fire. Thursday evening, the First Republic Bank, a Californian institution specializing in wealth management, received 30 billion dollars (27.9 billion euros) in fresh money from eleven major Wall Street banks taken by JP Morgan, but that was not enough: its action plunged on Friday by a third and is now worth 22 dollars, against more than 122 dollars at the beginning of March. Its sale during the weekend is possible.

The case weighed on regional banks – their index lost 6% on Friday and 30% since the beginning of March – but also on Wall Street giants such as JP Morgan (- 3.8%) or Goldman Sachs (- 3.7 %). The S&P 500 has erased almost all of its gains since the start of the year. Larry Fink, founder of BlackRock, the world’s largest asset manager, raised the specter of a “slow crisis”, “with further foreclosures and closures to come” in regional banks.

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The explanations for the crisis are several drawers. The finance world is paying the price for the free money policy of the Fed, chaired by Jerome Powell, and the Covid-19 budgetary stimulus plans: cash has flowed into the banks, which have placed it in Treasury bonds. With the resurgence of inflation, the Fed had to raise its rates from 0% to more than 4.5% in one year. And when rates rise, bond values ​​fall until they adjust to the new market yield, losing an average of 15% of their value in 2022. As a result, US banks had latent losses in their portfolios. estimated at 620 billion dollars at the end of 2022. This is “the price we pay for decades of easy money”wrote Larry Fink to his investors.

Prudential management rules flouted

Second cause, the negligence of the management. Violating all prudential management rules, Silicon Valley Bank placed its clients’ funds in long-term bonds and therefore did not have the necessary liquidity in case of withdrawals. This is what happened when start-ups began to consume their capital in times of crisis and withdrew their funds in panic when the difficulties of the bank became known. “I am strongly committed to holding accountable those responsible for this mess. No one is above the law”President Joe Biden said on Friday, calling on Congress to ” to act “ so that it is, in the event of mismanagement, “easier for regulators to claw back executive compensation, impose civil penalties and (their) prohibited from working in the banking sector”.

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