Experts warn of moral hazard after US intervention in SVB crisis

By Scott Murdoch and Carolina Mandl

SYDNEY/NEW YORK, March 13 (Reuters) – U.S. regulators may have stemmed a banking crisis by guaranteeing deposits at failed Silicon Valley Bank (SVB), but some experts warn the move is encouraging bad investor behavior .

After a weekend of wrangling over the future of SVB owner SVB Financial Group, US banking regulators have unveiled emergency funding plans for the bank.

El multimillionario gestor de fundos de cobertura Bill Ackman escribió en la red social Twitter que si las autoridades no hubieran intervenido, “habría desatado un pánico bancario comme en los años 30 que continuaría a primera hora del lunes, causando enormes daños económicos y diffficultades a million people”.

“More banks are likely to fail despite the intervention, but now we have a clear roadmap for how the state will handle them.”

However, by ensuring that depositors do not lose money, the authorities have again raised the issue of moral hazard, ie the removal of incentives to protect against financial risks.

“This is a bailout and a major shift in how the American system has been built and its incentives,” said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington. “The cost will be passed on to everyone who uses banking services.”

“If now all bank deposits are insured, why do you need banks?

On the other hand, the authorities indicated that the depositors of the New York bank Signature Bank, which the financial regulator of the State of New York closed on Sunday, will also be compensated without loss for the taxpayer. Additionally, the Federal Reserve has made it easier for banks to obtain emergency loans.

“While the Federal Reserve is now supporting anyone facing asset and rate challenges, it is de facto enabling a massive easing of financial conditions, as well as increased moral hazard,” said banking strategists Michael Every and Ben Picton. at Rabobank.

DEPOSIT INSURANCE

With only the first $250,000 of every deposit in a US bank being insured by the US Federal Deposit Insurance Corporation (FDIC), the collapse of SVB last week raised fears that its small business customers could not pay their employees. According to the FDIC, about 89% of the roughly $200 billion in deposits SVB held at the end of 2022 were uninsured.

US regulators have now eliminated that risk.

But in doing so, “they’ve taken another step to show they’re not willing to let free markets run their course,” said Kevin Muir, a Toronto-based independent trader.

Some analysts said the U.S. measures were not a bailout because SVB shareholders and unsecured debtors would not be covered.

“It’s definitely a short-term stress reliever, we can worry about moral hazard and lax regulation later,” said Steve Sosnick, chief strategist at Interactive Brokers in Connecticut, referring to stocks. regulators.

“SVB and Signature stock and bondholders are likely to disappear. That’s a lot of money evaporating, which must hurt someone. It won’t entirely eliminate concerns about other banks. who might be in trouble.”

Regulatory action sent U.S. equity futures higher on Asian exchanges on Monday, but investor bets reflect that, amid financial jitters, a hike in U.S. interest rates this month is no longer likely. a certitude.

(Reporting by Scott Murdoch in Sydney, Carolina Mandl in New York and Elisa Martinuzzi in London; editing by Anshuman Daga and Bradley Perrett; editing in Spanish by Darío Fernández)