According to European Union parliamentarians, U.S. regulators made mistakes in failing to prevent the collapse of Silicon Valley Bank and other financial institutions, and this is a time for Europe to reflect.
Silvergate Capital, a cryptocurrency-focused bank, was the first to go, announcing its closure on March 8th. Following that, Silicon Valley Bank fell due to a run on deposits. Signature Bank, which focused on lending to real estate enterprises, then experienced deposit outflows, prompting regulators to seize the bank in order to prevent the sector from collapsing.
Since then, First Republic Bank has gotten help from other banks amid concerns about a larger financial system shock. In Switzerland, which is not a member of the European Union, authorities had to intervene to save Credit Suisse by pushing UBS to make an acquisition.
Meanwhile, authorities and officials throughout the European Union have been concerned about the spread of the crisis to their own banking sector. After all, it wasn’t all that long ago that European banks were in the grip of the global financial crisis.
“There is no direct read-through of US events to [the] eurozone significant banks,” said Andrea Enria, chair of the European Central Bank’s supervisory board, on Tuesday. A number of authorities, including him, have made an effort to emphasize that the European banking sector is in far better shape than it was in 2008.
Some controls are lacking in the United States.
This underlines the EU’s position that the US should learn from some of the regulatory reforms implemented in the eurozone since the financial crisis.
“You need stronger regulation… in that sense, the United States lacks some controls,” Paul Tang, a European Parliament economic committee member, told CNBC.
When questioned if US authorities made mistakes that contributed to the recent banking crises, he answered, “I definitely think so, you need to have scrutiny.” That was the 2008 message.”
In Brussels, the heart of European policymaking, an official who did not want to be identified due to the politically sensitive nature of the subject told CNBC that several meetings between EU officials in recent days “stressed the failures of regulation [in the US], particularly when compared with the EU.”
One significant distinction is that the United States has more lenient capital regulations for smaller banks.
“The main difference is the Basel III requirements,” European Parliament member Stéphanie Yon-Courtin told CNBC. “These banking rules apply to very few banks,” she explained, “and this is where the problem lies.”
Basel III is a package of measures that have been in the works since 2008 to tighten bank oversight and risk management.
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It applies to the majority of European banks, while American lenders with balance sheets under $250 billion are exempt.
‘Remain alert.’
Despite some criticism directed at American authorities, the EU knows that now is not the time to relax. “We must maintain our vigilance,” Yon-Courtin remarked. “We have to be careful and ensure that these rules are still fit for purpose,” she continued, urging the rulebook to be constantly monitored.
One of the primary topics of discussion in the EU in recent days has been the need to reform the European Banking Union — a package of legislation implemented in 2014 to strengthen European banks.
The discussion has been politically charged, but the fact that high interest rates are here to stay has heightened its importance.
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“We are well aware that the ongoing rapid normalization of monetary policy conditions is increasing our banks’ exposure to interest rate risk,” said Enria, chair of the European Central Bank’s supervisory board, on Tuesday.
