Thursday, March 30, 2023

CAF does not see a contagion effect in Latin America due to the bankruptcy of the SVB in the US

The president of the Development Bank of Latin America-CAF, Sergio Díaz-Granados, told EFE on Wednesday that the region’s financial system “is in a better position” in the face of external shocks than in previous decades, for which reason he does not see an effect contagion in the region due to the bankruptcy in the United States of the Silicon Valley Bank (SVB).

In the opinion of Díaz-Granados, the fall of the SVB was “clearly” the product of the “impractical” management of the institution, due to the way “they were anchored in the purchase of bonds and structuring financial planning based on the fact that interest rates 0%” would remain in time.

Latin American banks “also bought bonds, but they also knew how to mix risks. I think it was mismanagement of risk”, which led to the bankruptcy of the SVB, and for this reason “the US government has reacted in time saying ‘this is not systemic’ and it is good that they send that message”, he indicated.

“On the Latin American side, I don’t think there is a contagion channel coming from there, it doesn’t seem like it,” added the president of CAF, who stressed that “the financial crises in Latin America and the Caribbean in recent years have better prepared the financial system”, which is now “much more solvent and better able to withstand the shocks of external crises”.

The bankruptcy of SVB, followed by the fall of two other smaller entities -Signature Bank and Silvergate- has raised questions about the effects of the aggressive rate hikes applied in the United States by the Federal Reserve and on the other side of the Atlantic by the Bank. European Central Bank, which is expected to raise rates again this Thursday by 50 basis points.

This same Wednesday, the Nobel Prize in Economics Joseph Stiglitz blamed the bankruptcy of the SVB on the rapid rise in interest rates by the Federal Reserve, which in his opinion is a sign that this policy “has failed.”


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