“We have to understand exactly what the situation is: there is a high degree of uncertainty, but we need to separate what is signaling, what is actual information, what is noise, what is really something that can change the environment . This is the challenge of the next few days”, explains the chief economist at Banco Modal, Felipe Sichel, heard by the Curto News.
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What he is saying is that the globalized world is experiencing perhaps the first banking crisis of the Twitter era. Therefore, a full plate for unfounded speculation and analysis to provoke a growing and disproportionate wave of withdrawals out of fear, which could harm the health of the banking system.
This is also what economic authorities in the United States and Europe are trying to avoid in the face of the collapse of the Silicon Valley Bank, in California. This Monday (13), President Joe Biden (USA) went public to state that the US banking system “is safe” and that North American deposits will be available “when they need them”.
What Biden wants is to prevent other account holders, afraid that the bank where they have investments or deposited funds will also fail, from rushing to withdraw this money. This would produce a dangerous cascade effect for the financial system.
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@curtonews Have you ever heard the expression “financial contagion”? Do you know what it means? Felipe Sichel, chief economist at Banco Modal, explains it. Connect! 👀
♬ original sound Curto News
And why do concerns arise about financial contagion from the failure of Silicon Valley Bank (SVB)? What does that mean?
“Financial contagion is a term closely associated with what we experienced in the 2008 crisis. The idea is that in a crisis that, in principle, is not systemic, that is, it is not a crisis in the banking sector as a whole, the measure If you have a problem in one bank and another, and the obligations or securities of these banks can be interconnected, this problem would spread to other financial institutions, even if healthy ones”.
Felipe Sichel also explains that the crisis at SVB was caused by withdrawals of deposits all at once. And this movement may encourage other account holders, from other banks, to do the same – for fear of a “bankruptcy” in financial institutions.
“And the problem that we saw happen with SVB ends up spreading to other institutions, right? The risk behind this is to provoke a banking crisis” – which could be relevant historically and with macroeconomic consequences. “Precisely for this reason, the authorities move so quickly”, concludes the economist.
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