SVB collapse more “idiosyncratic” than “systemic”: Amundi

Yasmine Raso

Senior Journalist, Financial Newswire

16 March 2023

European investment manager, Amundi, has highlighted while the collapse of Silicon Valley Bank (SVB) will likely not present any “systemic” risks it is still important to keep a watchful eye on “areas of vulnerability”.

In what has become the largest bank failure since the 2008 Global Financial Crisis (GFC), the Head of Amundi Institute Monica Defend and Group Chief Investment Officer, Vincent Mortier, said while it is negative for the market, it is “more of an idiosyncratic story rather than a systemic issue”.

“Compared to the Lehman crisis, the bank is not leveraged, has no big derivatives exposure and no relevant global connections,” they said.

“Yet, this event highlights the need to carefully assess the lagging impacts of higher rates, particularly when it comes to non-systemically important financial institutions and some other non-banking financial institutions, which lack strict regulation.

“We are positive on the banking sector, overall, in the US but we have a cautious stance regarding midcap financial equities. We favour banks with meaningful valuation support and a diverse deposit base.”

The Amundi pair also highlighted the potential of a positive impact on large banks, as the collapse may force customers to move deposits to larger and more established financial institutions.

“Industry lending standards will likely tighten further, which will constrain economic growth, reduce inflation and make it less necessary for the Fed to continue raising interest rates,” they said.

“As a result, customers will have less incentive to move deposits into higher-earning assets as interest rates plateau. A risk-off environment due to concerns about the financial system could result in a shift out of equities back into cash, which would increase industry-wide deposits.

“While we believe the Fed will remain committed to fighting inflation, it will have also to assess the impact of the current crisis and its potential spill overs, as the macro scenario remains fragile and the overall assessment is not easy given the lagging effect of policy actions on the economy.

“The tightening of financial conditions stemming from the SVB crisis may lead to a less aggressive Fed than expected only one week ago and could force the ECB to reassess its policy path. Yet market moves have been extreme and we believe now is not the time to fight the Fed, as inflation remains a key factor to watch.”