Hacker-City

Banks in France could collapse because 'widening riots can cause deposit flight,' analysts warn

Macquarie analysts warn that French banks face potential collapse risks if rising government bond yields and widening student riots trigger deposit flight from the country, drawing parallels to the 2023 U.S. banking crisis.

#france-banks#deposit-flight#bond-yields#financial-crisis#macquarie#european-banking#student-riots#ecb-intervention#banking-collapse#sovereign-debt

Banks in France could collapse because 'widening riots can cause deposit flight,' analysts warn

Certain analysts on Wall Street are voicing concerns that France's escalating government bond yields, together with ongoing riots, could jeopardize the stability of some French banks. This scenario may lead to foreign depositors withdrawing their funds from the country.

In recent days, student protesters and labor unions have taken to the streets, engaging in confrontations with law enforcement over the dire conditions in many French schools. Students frequently report issues such as overcrowded classrooms, insufficient heating during winter, and a lack of air conditioning in the summer months.

Macquarie analysts Thierry Wizman and Gareth Berry have articulated in various reports that should the protestors succeed in compelling the government to bolster education funding, it is likely that French bond yields would rise.

"We can easily see how further increases in sovereign bond yields and/or widening riots can cause deposit flight," they emphasized in a client note yesterday. "It was, after all, the rapid rise in bond yields in the U.S. in late 2022 and early 2023 that precipitated the liability-side collapse of Silicon Valley Bank and Republic Bank, alongside initiated liquidity interventions from the Fed for the banking system as a whole. Historically, fast increases in bond yields have been linked to financial collapses, and there is no evident rationale to assume that Europe’s financial institutions—particularly those in France—would remain unaffected by the recent spike in yields observed over the last few months."

The analysts further noted, "The rise in underlying yields may correlate with capital migrating away from France. Should this trend lead to a deposit flight from its commercial banks, then the likelihood of ECB intervention—such as deploying programs aimed at preserving bank liquidity, like its refinance operations—could become a reality."

For context, they also remarked that there are currently no indications that these developments are taking place.

Fed's Warsh withholds rate signal, praises recent global tightening with 'no free riders'

Federal Reserve Chairman Kevin Warsh refrained from signaling another interest rate hike this month while acknowledging global central banks are engaged in synchronized monetary tightening with "no free riders." Warsh also expressed optimism about AI's productivity benefits while warning the development path will be "very bumpy."