The banking crisis in Europe is unlikely - PIE analysts

The risk of the banking system crisis in Europe is low, according to analysts of the Polish Economic Institute (PIE). Although the poor capital situation of small banks will remain a challenge for the U.S. financial system, European banks have more restrictive requirements, which make them safer, the analysts estimated.

In the last two weeks, Silicon Valley Bank and Signature Bank in the United States ceased operations due to a massive withdrawal of deposits. "These are the second and third largest bankruptcies in US history, respectively, after Lehman Brothers" PIE analysts stated. However, they pointed out that the banks served very specialized companies and conducted quite risky asset management strategies.

Meanwhile, in Europe, UBS took over its smaller rival Credit Suisse after a plan for Credit Suisse to borrow up to 50 billion francs failed to reassure investors and the bank’s customers. PIE analysts commented that the bank’s financial situation has steadily deteriorated, and in addition, throughout 2022, a significant decrease in the value of deposits was observed.

Unlike the situation in 2008, the largest central banks acted quickly to increase financial liquidity, PIE stated. In response to the collapse of the SVB, the Federal Reserve guaranteed the return of deposits to customers and launched an aid program for financial institutions.