Differences in the balance sheet of European banks limits contagion, but does not make it invulnerable, according to Moody's

MADRID, 14 Mar. (EUROPA PRESS) -

The different predominant structure in the balance sheets of European banks limits the risk of contagion from the open banking crisis in the United States after the collapse of Silicon Valley Bank (SVB) and Signature Bank, although these differences do not make the sector completely invulnerable, according to Moody's agency.

In its analysis, the risk rating agency considers "a critical difference" between the European and American systems, which will limit the impact, that the bond holdings of European banks are lower and their deposits more stable than in the case of entities americans.

Thus, for Moody's, this has given rise to some structural differences between the euro area and US banks.

In this sense, it stands out that cash in central banks has a greater weight in the balance sheets of European banks and debt securities account for around 12% in the euro area, compared to more than 30% in banks in the United States, while that EU banks are also subject to capital requirements for interest rate risk, which implies less exposure to bond market risk.

For Moody's, deposits are likely to be more stable in Europe, while strong cash balances at central banks, which make up 16% of assets, mean European banks are less likely to need to resort to selling values ​​and the realization of losses.

Likewise, the risk rating agency highlights that both the Bank of England and the European Central Bank have well-developed contingent liquidity lines that banks actively use, while in the United States there was not such a broad agreement until this purpose was implemented. bank term financing program (BTFP).

"These critical differences do not make European issuers invulnerable," the agency points out, since, by definition, bank balance sheets are leveraged, have maturity mismatches, and are often complex and opaque, with interrelationships and exposures that sometimes they often only meet after the event.