Highlights of the week March 6-12
Silicon Valley Bank bankruptcy
Perhaps the biggest and most alarming event of the last week. SVB has been working extensively with start-ups not only in California but also in Britain and northern Europe. European startups are now missing out on around £30 billion that had been held at a US bank. The Bank of England is now trying to compensate companies at least partially to prevent an avalanche of bankruptcies.
Numerous clients are trying to withdraw their savings not only from SVB but also from other financial institutions. This could easily trigger a banking panic, thereby further aggravating this stressful situation.
For the moment it is difficult to evaluate all the potential outcomes because the banks are closed. All that remains is to wait for Monday. Experts hold that view.
At the moment, the full effect of the bank collapse is uncertain. Many IT companies, venture capitalists, and start-ups of all sizes were keeping deposits in their accounts, but the effect of the collapse is not going to be as severe.
What is more important is that with a business this size it is impossible to avoid interbank transactions. The loss of such a big player in the banking system is almost a guarantee of a liquidity crisis.
The liquidity crisis combined with increasing interest rates is dangerous because it raises the demand for funds, which are already expensive, and this brings a higher risk of rate increases.
To my mind, at the moment it is impossible to measure the real magnitude of the problem. We will have to observe the results from Monday's emergency Federal Reserve meeting, as well as look at the volume of liquidity provided through repo transactions from the FRS and the ECB.
- Roman Kuznetsov, Financial Analyst
However, the first estimates are already in sight: in addition to SVB, 25 US banks may suffer potential losses of a similar magnitude. Meanwhile, more than 200 UK companies will be unable to pay their employees. The bank collapse will impact between 30% and 40% of startups with around 50,000 employees.
Europe vs. Tiktok
Over the past week, European governments have been seriously taking on the Chinese multimedia platform. After some scandalous allegations of personal data leaks and data collection at the service's headquarters in China, things seemed to calm down for some time.
But after the US drafted a bill to ban the app, Europe has also taken some big steps towards its own security.
In late February, the EU required executive officials to remove the app from all devices that may contain enterprise software. The deadline for compliance with the new rules just ran out on Wednesday, 15 March.
Nevertheless, the service has reacted to the decision quickly and promised to set up at least two new secured data centers in Europe by the end of 2023, where the accounts of EU users will be relocated.
Luxembourg takes its time in making radical decisions: referring to EU instructions it is also questioning the assumptions of a complete ban of Tiktok in Europe. The Grand Duchy's neighbors, on the other hand, appear to be more determined. Belgium, for example, has openly banned civil servants from installing the world-famous app.
