Europe is Protected from the Bankruptcy of SVB

World » EU | March 15, 2023, Wednesday // 08:43
Bulgaria: Europe is Protected from the Bankruptcy of SVB @Wikimedia Commons

The turmoil in the US banking sector following the collapse of Silicon Valley Bank (SVB) should have only a limited impact on European banks, which are organized differently, said ratings agencies Moody's and S&P Global on Tuesday, AFP reported.

Markets were rocked earlier this week by the bankruptcy of two US regional lenders, SVB and Signature Bank, which forced authorities to take measures aimed at preventing problems from spreading across the sector.

Moody's, which downgraded the outlook for the US banking sector from stable to negative, said the structure of European banks limits their exposure as they have a larger share of central bank deposits.

The US-based agency added that debt securities are a smaller part of European banks' balance sheets compared to US institutions.

"A significant difference between the European and American systems, which will limit the impact across the Atlantic, is that European banks hold fewer bonds and their deposits are more stable because they have not grown as quickly," it said.

S&P Global Ratings said the European banks it monitors and rates do not have the same economic model or funding sources as US banks, adding that their direct exposure is unlikely to be significant.

EU Economic Commissioner Paolo Gentiloni, French Finance Minister Bruno Le Maire and German Chancellor Olaf Scholz were among European leaders who reassured markets about the continent's exposure to financial turmoil.

But Moody's warned that the tightening of interest rates "is likely to still have an impact and developing strains in the US banking system will weaken investor confidence and increase funding pressures for European institutions".

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