24 November 2023

“We have all the tools we need. » Andrea Enria, head of banking supervision at the European Central Bank (ECB), wanted to be reassuring on Tuesday 28 March about the means available to the authorities to ensure the stability of the sector after the “turbulence” recent weeks linked to the bankruptcy of Silicon Valley Bank (SVB), in the United States, and the takeover of Credit Suisse by UBS. But he recognizes it: the challenge of the moment is the ability to provide supervision “effective”.

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The observation is widely shared: the regulatory framework has been considerably strengthened since the great financial crisis of 2008-2009, but its application still leaves something to be desired. And not only in the United States, where the fall of SVB, due to errors in liquidity and risk management, was facilitated by the relaxation of bank supervision decided by the Trump administration.

“The United States had time to go through a cycle of deregulation in 2018-2020, which was not the case for the Europeans”explains Nicolas Véron, economist, member of the Bruegel think tank and researcher at the Peterson Institute for International Economics in Washington. Unfortunately, the time when the system is safest is after a major crisis. Then, the memory of the crisis erodes and gives way to a certain complacency. »

Suspicions of impunity

SVB thus left the field of the radars of the federal regulation, which led the authorities to intervene urgently by announcing that the assets of the customers of the bank would be guaranteed beyond the legal ceiling of 250,000 dollars (230,000 euros) . A sprain which was intended to prevent an accelerated flight of deposits and contagion to other establishments, but which now risks becoming the rule.

“US authorities have crossed the Rubicon by deciding that a mid-sized bank needs unlimited collateralbelieves Nicolas Véron. From now on, the unlimited guarantee is probably valid for everyone, and permanently. »

Washington’s choice is all the more criticized in that it exposes the banks and their managers to recurring suspicions of impunity in application of the principle of too big to fail (“too big to fail”), according to which the sustainability of the financial system as a whole would force the public authorities to save any major institution in difficulty.

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The fundamental problem of financial regulation is that once you find yourself in a crisis situation, it is too late: for the banks “too big to fail”, there is no other solution. than to help them. That’s why it’s so important to make sure you never end up in that situation.”summarizes Jean-Edouard Colliard, associate professor of finance at HEC Paris.

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