EU Commission Member for Financial Services Mairead McGuinness spoke about the impact of bankruptcies in the USA on Europe at the European Parliament (EP) General Assembly session held in Strasbourg.
“We are following the situation in the USA carefully. The direct impact of this on the EU seems limited,” said McGuinness, adding that there are lessons to be learned for the banking sector from the events.
McGuinness reminded that 3 US banks went bankrupt in the last few days, namely Silicon Valley Bank (SVB), Signature Bank and Silvergate Bank.
“Bankruptcies are due to deficiencies in balance sheet management”
Pointing out that the US authorities took comprehensive, fast and determined steps, McGuinness said, “These bank failures are due to deficiencies in the management of their balance sheets.”
Reminding that SVB received serious corporate deposits during and after the epidemic, McGuinness stated that the bank invested a significant portion of these deposits in long-term fixed-rate assets.
McGuinness said the bank later faced a deposit outflow, and the SVB had to sell long-term assets at a significant loss as interest rates rose.
Emphasizing that this loss triggered more deposit outflows, McGuinness said that the bank could not raise capital and that the US authorities should step in.
“SVB had a very limited presence in the EU,” McGuinness said.
Noting that they are in contact with banking supervisors, McGuinness said, “The direct impact of bank failures in the US on the EU appears to be limited.”
“The change in interest rates created a new environment”
Pointing out that there is no similarity between SVB and EU banks, McGuinness said, “This shows how the economic and financial situation has changed globally and in Europe.”
Commenting that “the change in interest rates has created a new environment”, McGuinness said that the EU financial system and especially the banks’ tight control under He reminded that he was caught.
“We must be vigilant against this new environment. High inflation and rising interest rates present different challenges to financial stability than long-term low interest rates,” McGuinness said.
Pointing out that the losses in the bond portfolio of the SVB are an example of this problem, McGuinness reminded that the EU banking sector is in good condition in general and that they are closely monitored by national and European authorities.
Reminding that US banks are not subject to strict rules on liquidity, McGuinness said, “We apply Basel standards to all banks in the EU.”