© Noah Berger / AFP
According to experts from Luxembourg's financial sector, the recent collapse of three US American banks is not expected to have a significant impact on the Grand Duchy's financial sector.
US media have described the collapse as the "worst bankruptcy since the 2008 financial crisis". Three banks have been affected so far: the Silicon Valley Bank, Signature Bank, and Silvergate Bank. Following the series of unexpected events, the European stock exchanges started the week in the red on Monday.
In Luxembourg, the Association of Banks and Bankers (ABBL) and the Financial Sector Supervisory Commission (CSSF) were keen to reassure people of the stability of the financial centre, firstly by stating that the SVB is neither present nor active in Luxembourg. The only risk is that potential clients may not be able to recover all the money they had invested in this bank, which has very few relations with Luxembourgish institutions, thus limiting the contagion effect.
Claude Marx, CSSF CEO, noted: "We don't know whether Luxembourgish clients are with the bank, but this will not affect our financial sector. They are at risk of not getting all their money back. We do however know that there are no relations with Luxembourgish banks."
ABBL director Jerry Grbic agrees with this take: "The risk is very very small. First, we have much stricter rules for banks in Europe, especially regarding the liquidity they must hold and place with the central bank. The equity ratio is also much higher than during the financial crisis in 2008."
US President Joe Biden announced that the rules would also be tightened in the US. The Silicon Valley Bank was one of the most important players in the financing of start-ups, with many young companies having deposited large sums of money with it, but interest rates exploded. This implies a decrease in the value of the bonds and the bank did not have enough cash to cover this last minute event, explains Grbic.
The operations of the American bank were therefore halted as Secretary of the Treasury Janet Yellen ruled out a public bailout for the bank. According to Marx, it will therefore be partially or fully sold, which would allow it to operate fully or partially again in the future, but if no buyer comes forward, it will simply be liquidated.
US authorities have stated that the bank's customers' money is safe. The International Monetary Fund (IMF) said the Silicon Valley Bank insolvency is not expected to cause a domino effect either, but that it would have an impact on the international scene of start-ups and their relationship with banks.