MEPs from the Economic and Monetary Affairs (ECON) Committee exchange with Andrea ENRIA, Chair of the Supervisory Board of the ECB and by Jose Manuel CAMPA, Chair of the European Banking Authority (EBA) on the failure of the Silicon Valley Bank (SVB) and the implications for financial stability in Europe. Extracts from the exchange of views.

Brussels

exchange of views

EU - USA (T)

public hearing

Committee on Economic and Monetary Affairs

financial supervision (T)

TINAGLI, Irene (S&D, IT)

CAMPA FERNÁNDEZ, José Manuel

Failure of the Silicon Valley Bank (SVB) and the implications for financial stability in Europe: extracts from the exchange of views

https://api.multimedia.europarl.europa.eu/documents/20125/69372392/1679416738715_I238958Chapters%5BSD-EN%5D.srt

SOUNDBITE in EN, Irene TINAGLI, Chair ECON, As you know, U.S. authorities shut down Silicon Valley Bank on Friday, March 10th, 2023, As the SVB had its headquarter in California and was the 16th largest bank in the US catering for the financial needs of technology companies globally. The collapse of of this bank is the largest failure of a U.S. bank since the financial crisis in 2008.

SOUNDBITE in EN, Andrea ENRIA Chaire of ECB Supervisory Board The failure of some mid-sized US institutions over these months remind us that specific features of bank's business model can make its balance sheet particularly vulnerable to interest rate risk in extreme cases, these can turn rising interest rates from a boost to profits into an existential threat,

SOUNDBITE in EN, Andrea ENRIA Chair of ECB Supervisory Board, Although uninsured deposits are an important source of funding in the euro area as well, they tend to be more relevant for business models which are well diversified or move the asset side and the liabilities side, including their deposit base.

SOUNDBITE in EN, Andrea ENRIA Chair of ECB Supervisory Board, During this review of risk management practices, we asked some banks to be more conservative on their assumptions and when the assumptions they apply when stress test increased price on financial securities, We also encourage them to improve the calibration, validation and backtesting of their assets and liabilities management models, to make sure that these models properly reflect the low repayment and deposit withdrawals behaviours by customers in line with the interest rate environment.

SOUNDBITE in EN, Jos&eacute; Manuel CAMPA, Chair of the European Banking Authority, Over the past decades, we have faced low interest rates. Now, with a gradual increase in rates, banks were beneficiaries in the short run of this increase in rates, their profitability increased last year as net interest income and interest margins gains materialised throughout the year.

SOUNDBITE in EN, Jos&eacute; Manuel CAMPA, Chair of the European Banking Authority, The European banking sector remains fragmented along national lines and there is no rationale for Europe to keep the banking union in two pillars only. Proper risk and capital allocation need the foundation of a common deposit insurance scheme and the crisis around this framework that also needs to be a strength to reduce fragmentation and divergence across the Union. Finally, likewise, the capital market union remains incomplete. Both of these large projects merit proper translation from political ambition into reality to prepare our economy for potential more volatile times to come.

Failure of the Silicon Valley Bank (SVB) and the implications for financial stability in Europe: extracts from the exchange of views

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ECON - Committee on Economic and Monetary Affairs