The extent of the banking crisis in the United States is still uncertain, but the risk of contagion in Brazilian financial institutions is considered low, according to experts interviewed by Valor. In addition to local banks having good capitalization and liquidity ratios, their exposure to the American market is small.
The crisis could have other effects in Brazil, mainly due to an increase in risk aversion, which could affect the exchange rate and lead to an even lower appetite for emerging market assets among investors. Another channel would be through commodity prices, if there is a deeper recession than expected in the United States.
Caio Megale, Chief Economist of XP and former Secretary of Development of Industry and Commerce at the Ministry of Economy, says that for now it is not possible to know if the problems at Silicon Valley Bank (SVB) will affect other larger banks in the US. "We may be sitting on a house of cards, and SVB was the first card to fall, or it may be that all of this passes and in a week we forget what this bank was," he says.
According to Megale, US authorities acted quickly and did what they had to do to stop the problem. For the economist, unlike the 2008 crisis, when the American real estate market had serious structural problems, SVB's difficulty now was a classic case of poor financial management, of mismatching between assets and liabilities.
Lawyer Jairo Saddi, former president of the Credit Guarantee Fund (FGC), does not believe there will be a banking crisis in the US. Firstly, due to the relatively small volume of assets at SVB, and secondly, because the risk of contagion by reputation seems remote. Nonetheless, he believes that authorities having saved all depositors, even those with amounts above the limit of $250,000 covered by the Federal Deposit Insurance Corporation (FDIC), sends the wrong message and creates a moral hazard. "Given that they will save everyone, it creates the wrong incentive, that every investor can invest however they want and still be saved," he says.
An important difference from the 2008 financial crisis is that, because of it, Basel III rules - which increased bank capital requirements - and other regulatory advances are in effect today. However, some experts say that these tools should have prevented SVB's mismatch of assets and liabilities from going unnoticed by authorities.
Ênio Bonafé, economist and instructor at the Brazilian Association of Banks (ABBC), says that a case like SVB's would be much more difficult to happen in Brazil. Here, prudential norms from the Central Bank require banks to measure and report to the authority on short-term liquidity (LCR) and interest rate risk in the bank's portfolio (IRRBB). "During the pandemic, the Federal Reserve [Fed, the US central bank] irrigated the market and allowed banks to put that money into unmarked securities. What happened there would certainly be much more difficult here. The US adopted Basel rules much more restrictively than Brazil."
Earlier this month, the Financial Stability Committee (Comef) of the Central Bank said that "banks in general voluntarily maintain capital and liquidity levels above prudential requirements" and that "given the low exchange exposure and the small dependence on external funding, the exposure of the national financial system to financial fluctuations originating abroad is low."
In the Financial Stability Report at the end of last year, the Brazilian Central Bank showed that in June, the short-term liquidity ratio had risen to 183%. This indicator, also called the "liquidity coverage ratio" (LCR), relates the volume of liquid assets held by the institution to the cash flow in a stress scenario, considering estimates of disbursements one month after the outbreak of a problem. A result above 100% shows that there are enough assets to withstand a liquidity crisis for that period.
Junior Borneli, founder of StartSe, a business school that operates in various innovation hubs, including Silicon Valley, says that in light of the SVB case, hedge funds and venture capital firms are advising their investees to reassess where they deposit their funds, and in this sense, the ecosystem will have to reinvent itself. "All startup CFOs are analyzing this, trying to understand the solidity of the banks they use. Ultimately, they could withdraw money from small and medium-sized banks, which have more risk, as they have fewer available assets and perhaps not as strong financial management as the larger institutions."
Source: Financial Intelligence Portal