Darío Epstein, on the bank crisis: “The FED has already moved, we have to see the market’s reaction”

The world sees and suffers the consequences of the financial crisis unleashed by the fall of the Silicon Valley Bank (SVB) in the United States. As told to Ambit Dario Epstein, director of Research for Traders and specialist in capital markets, “everything started because a group of banks in the United States took short-term deposits one or two years ago, when the rate was very low, and, to improve profitability, they invested them in long-term Treasury bonds.” term”.

That was the case of Silicon Valley Bank (SVB), which is best known for having become the second largest bank to fail in the United States. The problem, in that case, as Epstein explains, is that they received a lot of deposits from start-ups and venture capital companies and they did not have enough time to lend that money.

“For this reason, they opted to park it in Treasury bonds until the situation settled down,” he says. But, instead of looking for short-term Treasuries, which yielded almost nothing, they went to long-term bonds, which yielded much more, and “the Federal Reserve (FED) raised rates very quickly and there was a rate mismatch and deadlines”.

Thus, Epstein indicates that it was a mismanagement of assets and liabilities and warns that the domino effect of this situation that is being seen at this time lies in the possibility of this case repeating itself. In this interview, the expert analyzes the consequences of this run on deposits and how it affects the world and Argentina.

Journalist: What is the main latent risk today and how do you assess the reaction of the United States Government to this crisis?

Dario Epstein: What the bank did was go out and sell bonds, even though it knew it was going to take a loss, but the market got scared and withdrew US$42 billion of deposits in a single day. And there is no bank that can withstand that run. Now, the question is whether there are other banks, especially small and regional ones, that are in a similar situation and that destabilized confidence because investors fear that this will happen in other cases. This, despite the fact that the United States government guaranteed 100% of the bankrupt bank’s deposits. Because they took the necessary measures to contain the crisis, but now the risk is to see how people react.

Whether it works or not depends a lot on how the subject is communicated. The market is asking the Federal Reserve (FED) that, for two years, 100% of the deposits are guaranteed to completely eliminate the risk. The problem is that we are talking about $17 trillion, which is a lot of money, even for the United States. If this was controlled here, nothing will happen, but if not, additional measures will have to be taken.

Q.: And with Credit Suisse, what happened? Because this generates a lot of fear regarding a global contagion.

OF: What happened with Credit Suisse is that it had been hit hard for years. The brand became fabulous, but it did not come well. So, there were important outflows of deposits last week, a liquidity line launched by the Swiss central bank came out, but the bank was already hit. And, as a result of the crisis, there was a first offer from UBS, the main Swiss bank, to buy it for US$1,000 million and not pay some US$17,000 million bonds. But the bank had closed Friday with a market value of $8 billion. So, the question is what is the market seeing that we don’t know what makes you think you can buy something that is worth much more as a gift. The truth is that the Credit Suisse crisis had to be resolved yes or yes this weekend before the markets opened and the UBS ended up paying $3.25 billion, a trifle considering that it was worth $8,000 millions. It is also necessary to see what the UPS finds once it does the take over, that is true, but, apparently, the Swiss Government would agree to cover a part of the debt contingent that it finds.

The positive thing is that, in what there is agreement between the central banks of the United States, China and Europe is not to default. The entire strategy seeks to avoid a run on small banks, so everything that is done aims to look at the depositor. What must be observed now is whether those bonds that Credit Suisse has on its balance sheet that are not being paid for now are the same as the ones that UBS has and there are other European banks that have been in complex situations for years and we have to see how the banks react investors now. They are going to have to solve it somehow because, if not, there may be a systemic risk on that side.

Q: How does all this impact Argentina?

OF: In Argentina we are quite disconnected from the world because we do not have access to international financial markets. But we have to see what happens in terms of prices of exportable and importable products. That, for one thing. Then, you also have to see if this makes the dollar rise or not, if the prices of raw materials rise, etc. And all this depends on whether there is a crisis or not.

On the other hand, the contributions to start-ups have died, it is finished for a long time. It will be very difficult to continue getting money. But Argentina has an issue that is very clear and hinders any investment today: it is in the middle of an electoral year, with a scenario in which the whole world is waiting to see what happens.

Q: Is there a fear about the future of the traditional financial system that could benefit crypto?

OF: Cryptocurrencies were born with the 2008/2009 crisis and this situation reaffirms the concept of non-centralized currencies. That’s true. But you have to be careful because the world, for better or worse, is still being run by central banks. That makes cryptocurrency gains from the banking crisis potentially infinite or nil in the end. Because, if the central banks decide to fight them, it is a total defeat for them, game over.