The CEO of Citigroup (group behind Citibank), Jane Fraser, said on Wednesday (Mar 22, 2023) that she was confident in the soundness of US banks. The statement was made at a time when the country’s banking sector is trying to overcome bankruptcies that shook investors and world financial markets.
“The banking system is quite solid”, declared Fraser at an event Economic Club of Washington D.C. –a non-partisan, non-profit organization that aims to strengthen relationships between business people in the Washington region (USA). According to her, the situationhas not spread throughout the banking system” from the country.
In early March, 2 US banks –SVB (Silicon Valley Bank) and Signature Bank–collapsed within a few days. The US government had to intervene to prevent the situation from getting complicated. Read more about it at the end of this report.
“This is not a credit crunch”, said Fraser. “This is a situation where some banks have some problems”, continued. For her, “Better be sure to nip it in the bud”.
Citi is one of 11 major banks that agreed to providein the last week, arescue package” in the amount of US$ 30 billion (R$ 157 billion, at the current exchange rate) in deposits at First Republic Bank. The deposit aims to stabilize the US bank’s operations and restore user confidence after the collapse of the SVB. dropped the shares from the company.
According to the CEO of Citigroup, the bank is not interested in buying First Republic Bank. The US$ 5 billion placed by the group in the “rescue package” are a sign of confidence in the banking system.
Another situation that moved the financial market was the purchase of Credit Suisse by swiss bank UBS, announced on Sunday (19.Mar). Days earlier, on March 14, Credit Suisse Group AG informed have identified “material weaknesses” in your financial reports for the past 2 years.
“I don’t think anyone fell off their chair because Credit Suisse ended up where it ended up, it was really a matter of time”, declared Fraser. “It’s been a troubled institution for a long time”, he added, citing that Credit Suisse went through “administrative instability” It is “several crises”.
The collapse of SVB (Silicon Valley Bank) has begun on March 8, when the bank reported that it had recorded a loss of US$ 1.8 billion (R$ 9.9 billion) in the 1st quarter of 2023 by paying off US$ 21 billion in securities (R$ 109 billion). The financial institution also said it planned to sell US$ 1.7 billion (R$ 8.8 billion) in shares.
The disclosures signaled that financial losses would bankrupt the company. The announcements also raised eyebrows among other investors. The result was a classic customer scramble to get the money out of the bank as quickly as possible. However, part of the withdrawn amount was invested in other, less liquid assets.
The investments were possible because, in 2020, because of the covid-19 pandemic, the Fed (Federal Reservethe US Central Bank) loosened rules and financial institutions were able to spend 100% of what they received on deposits from customers. With the pandemic, demand for loans dropped and banks began to buy assets with customer deposits. SVB was one of them.
After the announcement of losses on March 8, the institution was unable to meet withdrawal requests. Therefore, an intervention was necessary to avoid a case similar to the crisis of the subprimein 2008.
On March 10, the California Department of Financial Protection and Innovation announced the closure of SVB.
The agency also appointed the FDIC (Federal Deposit Insurance Corp), created in 1933 at the height of the Great Depression to protect account holders and savers, to manage the situation and return money to customers and small businesses that have deposits with the institution from 13 March.
The FDIC works similarly to the Brazilian FGC (Credit Guarantee Fund).
In addition to the FDIC, the Fed announced on March 12 the creation of a new funding program in the long term for banks to ensure the ability of financial institutions to pay their depositors. The US Treasury will make available up to US$ 25 billion from the Exchange Stabilization Fund for this purpose.
On March 13, US President Joe Biden spoke about the case. He said the country’s banking system is safe.
The US leader also stated that will hold the culprits accountable by the bankruptcy of US banks Silicon Valley Bank and Signature Bank. A last financial institution closed on March 12, after presenting a systemic risk similar to SVB.
Watch Biden’s speech (5min5s):
In Brazil, the Minister of Finance, Fernando Haddad, said on March 13 that the BC (Central Bank) should take “some providence” regarding the SVB break.
He also stated that the federal government is in tune with Brazilian banks and the Central Bank to learn about risk perceptions for the Brazilian economy.
Read more about the SBV collapse and its aftermath:
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