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Moody’s: the big European banks are not in danger, and the small ones can trust the loyalty of their depositors

According to Moody’s assessment, although rising interest rates have a negative effect on the value of banks’ bond portfolios, their market value will approach their nominal value as they approach maturity due to the effect known as “pull-to-par”.

Based on their sound liquidity and funding profiles, cash holdings and stable deposits, we believe that large European banks are generally well positioned to avoid the need to sell their bonds at a loss

– says Moody’s commentary.

According to Moody’s figures one third of the government bond holdings of European banks will expire in the next two yearswhich ensures continuous cash flow and reduces the need to sell assets.

The agency believes that the failures of US Silicon Valley Bank and Silvergate were caused by a “sudden loss of confidence and high cash outflows from concentrated deposits”.

Regarding the smaller banks Moody’s message is no longer so reassuring, the company believes that smaller, deposit-financed banks they can rely on the stability of their loyal depositor basethis can ensure that they can wait for the bond values ​​to recover (quasi the maturity of the bonds) without incurring significantly higher financing costs.

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