The measures taken by USA to guarantee the deposits of the technological bank Silicon Valley Bank they failed to reassure investors about the financial strength of other banks, causing bank shares to plunge on markets around the world.
He STOXX European Bank Index It sank 5.8%, after losing 3.78% on Friday, leaving it on track for its biggest drop in two days since March 2022, shortly after the Russia invade Ukraine.
Commerzbank AG fell to 12.7%, while Credit Suisse Group AG briefly hit a new all-time low after tumbling more than 15%.
US banks also fell in pre-market trading, with Bank of America yielding 3.7%. Smaller lenders remained under pressure, with the private First Republic Bank sinking about 60%, and pac westaround 40%.
After a dramatic weekend, US regulators intervened on Sunday following the collapse of SVB, the biggest US bank failure since 2008, which suffered a savers run after a big hit to a bond portfolio.
SVB clients will have access to all their deposits from Monday and regulators have put in place a new mechanism to give banks access to emergency funds. The Federal Reserve (FED) also made it easier for banks to obtain loans in an emergency.
Banks in the United States lost more than $100 billion in market value at the end of last week after the SVB bankruptcy, while European banks have already lost a similar amount, according to a Reuters calculation.
How does it impact Uruguay?
The Uruguayan bank is in an excellent liquidity situation, the economist and analyst assured Ámbito.com Nicholas Lussich.
The latest statement from the Financial Stability Committee –made up of the Central Bank of Uruguay (BCU), the Bank Savings Protection Corporation and the Ministry of Economy and Finance– assured last December that the domestic financial system is stable and in conditions to be able to face the challenges presented by an international panorama full of uncertainty.
The next data on the robustness of the Uruguayan financial system will be known tomorrow, when the BCU publishes a new information bulletin.
“We see no impact at the local level. In fact, quality fixed income is being a refuge”, the stockbroker told Ámbito.com diego rodriguezpartner in Gaston Bengochea. “We have recommended over the past few months to add investment grade bonds to portfolios and today is where we want to be”, he added.
Rodríguez insisted that there is no systemic risk. “We believe that it will be very difficult for Jerome Powell to justify continuing with a contractionary monetary policy, therefore we are facing the long-awaited ‘pivot’”, he stressed, suggesting caution with investments in medium-term bonds of quality assets.
Lussich, who agreed that a contagion effect of the banking crash in the United States was unlikely, did estimate that there could be a consequence of the pressure on the BCU to modify its policy regarding the reference interest rate.
The two-year US Treasury yield fell 55 basis points to around 4.09%, marking its biggest one-day drop since 1987, according to Refinitiv data. 10-year bonds were down almost 40 cents.
Thus, the markets now value at a 40% probability that the US Federal Reserve will not raise rates. Last week, a 25 basis point hike was fully expected, with a 70% probability of 50 basis points.
As a consequence, the arguments of economic agents would grow in favor of lowering the BCU interest rate or, at least, freezing the current reference value, which is 11.50%.
“If the BCU continued on the path of raising the rate, it would be above the values of the United States,” explained Lussich.
The BCU interest rate has been a central issue in the financial debate in Uruguay for months since industry, analysts and the agro-export complex adjudicate the reason for the sharp depreciation of the dollarwhich is affecting the competitiveness of the economy.
The goals of the monetary authority provided for a less contractive policy as the inflation throughout this year. However, the effects of the dramatic drought they could have an impact on consumer prices and truncate those plans.
Source: Ambito
