Germany’s Bundesbank Convenes Financial Crisis Team to Assess Impact of Silicon Valley Bank Demise

The Bundesbank reportedly convened its crisis team on Monday (March 13, 2023) in order to assess the impact of the fallout of the US-based lender Silicon Valley Bank (NASDAQ:SIVB) on the domestic market, even while no emergency action or measures were expected in Europe.

As reported by Reuters, US regulators introduced various emergency measures yesterday in order to increase confidence in the nation’s banking sector following the failure of Silicon Valley Bank, which has threatened to ignite a wider financial crisis.

With the Euro Zone banking shares declining considerably early today (Commerzbank shares declined around 11%, and Deutsche Bank had fallen over 6%),  the German reserve bank held a meeting with its financial crisis unit in order to determine the possible implications for the domestic lenders and broader financial sector. This, according to sources cited by Reuters.

Established during the major financial crisis of 2008, the professional team is responsible for notifying the Bundesbank’s board and making relevant suggestions/recommendations, however, it does not have the authority to make key decisions.

In the eurozone, decisions are usually taken by various supervisors for smaller banking institutions as well as by the European Central Bank’s Single Supervisory Board for larger service providers.

A European supervisor reportedly informed Reuters that the Single Supervisory Board had not convened any emergency conference and that it was not going to be holding one, with its upcoming meeting set for March 23-24, 2023.

There has reportedly been no communication from that board or even from the ECB’s Governing Council, which is tasked with handling monetary policy, and no such update is currently expected.

The sources have also revealed that Euro Zone banking institutions were typically quite well capitalized and had done a decent job of transacting assets from their trading accounts to their “hold-to-maturity” portfolio. This means they did not have to account for relatively lower market prices due to surging interest rates.

He also pointed out that euro zone banking institutions typically had a more conservative set of assets when compared to SVB, which primarily lent to riskier technology-focused firms.

The source claims they see no clear implication of the massive SVB collapse for euro zone banks. However, they did warn that this might change should the fallout in the US begin to impact larger institutions, thus escalating the potential risk of contagion.

Germany’s regulator BaFin, which is responsible for supervising Germany-based banking institutions with assistance from the Bundesbank, stated that it would be imposing a moratorium on the German division of SVB following its collapse.

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