SVB, victim of the “battle between fire and ice” against inflation, according to bankers

By Iain Withers and Lawrence White

LONDON, March 14 (Reuters) – The dramatic fall of Silicon Valley Bank and the market turmoil it sparked are part of a “battle between fire and ice” amid global efforts to curb the ‘inflation after years of cheap money,’ Edward Pick, co-chairman of Morgan Stanley, said Tuesday.

Sharp interest rate hikes by the Federal Reserve and other central banks to combat soaring consumer prices have inevitably led to surges, Pick told delegates at the Morgan Stanley European Finance Conference, adding that SVB and Signature Bank had been victims of this situation.

“It’s part of the process of tightening financial conditions to make sure we’re on track to normalize a world with higher interest rates,” Pick said.

“But there could be surprises and reactions,” he added, noting that the market is halfway through a “kill inflation” struggle that will last between 12 and 18 months.

The collapse of the SVB put further pressure on bank stocks in Asia and Europe on Tuesday, as concerns grew over possible contagion to other banks.

The European banking stock index showed signs of stabilizing in later trades, losing 0.5% at 1106 GMT, while several US banking stocks rallied strongly at the market open.

The United States has taken emergency action to give banks vulnerable to a run on deposits special access to additional funding, but assurances from President Joe Biden and other leaders have so far failed. succeeded in calming the markets. .

Investors and analysts now anticipate adjustments to global interest rate policies aimed at containing runaway inflation and believe the pace of further rate hikes could weaken some banks’ balance sheets.

Lloyds chief executive Charlie Nunn said earlier at the event that UK banks were not yet seeing a ‘flight to quality’ in deposits among customers worried about the safety of their money after the collapse from SVB.

Big U.S. banks such as JPMorgan and Citigroup have seen a surge of customers asking to transfer their accounts to bigger banks, the Financial Times reported on Tuesday.

(Reporting by Iain Withers and Lawrence White; Editing by Sinead Cruise; Editing in Spanish by Tomás Cobos)