The chief executive officer of the State Pension Fund of Finland (Valtion Eläkerahasto, VER) said the demises of Silicon Valley Bank (SVB) and Credit Suisse are evidence of a problem with certain individual banks, rather than a general banking crisis.
In blogs published on Wednesday however, Timo Löyttyniemi warned that if inflation and interest rates did not decrease as hoped, there was a risk those two crises could escalate into an unpredictable banking crisis.
Löyttyniemi wrote: “Silicon Valley Bank made big mistakes in its own operations. Also, external factors contributed to the problems.”
The biggest problem for SVB had been posed by the general rise in interest rates, the CEO said, with the $120bn (€110bn) it held in government bonds, asset-backed instruments and other similar securities falling in value to the extent that at the end of 2022, the unrealised losses reached over $15bn, equal to its equity.
Meanwhile the crisis in Europe over Credit Suisse – which was forced into a sale to UBS – was more a crisis of a single bank than a general banking crisis, the VER CEO said.
“Credit Suisse’s fate seems to have nothing to do with the problems facing US banks or the overall increase in interest rates,” he said.
After falling for two decades, rising interest rates had been wreaking havoc, he wrote, saying the housing market was declining at the same time as the stock markets were falling and that technology stocks had collapsed.
“At one point, the UK pension system was on the brink of crisis and now the problems of the Californian SVB have highlighted the potential balance sheet problems of banks,” he said.
Now, he said, it was hoped that inflation rates would come down, and interest rates with them.
“Failing that, there is a risk that the crises facing individual banks could escalate into an unpredictable banking crisis,” he said.
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