six questions about bankruptcy and its risk of cascading consequences

The rise in interest rates precipitated the bankruptcy of the Californian bank SVB. NOAH BERGER/AFP

DECRYPTION – On both sides of the Atlantic, the risk of contagion from SVB’s setbacks to the rest of the banking sector took banks on the stock market on Monday.

1 – Why is Silicon Valley Bank bankrupt?

Rising interest rates precipitated the bankruptcy of SVB. The California bank had a “large part of its short-term liabilities, in the form of deposits, and a very high proportion of its long-term and fixed-rate ets”, explains Éric Dor, director of economic studies at the Ieseg School of Management. What made her “very highly exposed” interest rate risk. “As soon as rates started to rise, SVB had to better remunerate its deposits and its interest charges rose sharply”adds the expert.

There rate hike also led to a depreciation in the market value of government bonds issued by the United States and held by SVB. As long as the bank keeps them, the loss is certainly potential. “But the bank is still weakened, because the markets are aware that if it needed liquidity and was forced to sell these bonds before their maturity, it would suffer a large loss”deciphers Eric…

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