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Bank stocks around the world fell, even as President Joe Biden announced measures to ensure the safety of the US banking system following the failure of Silicon Valley Bank, SVB, and Signature Bank.
The US government took emergency measures to bolster banks by giving them access to additional funding if they failed to allay investor concerns about possible contagion to other lenders around the world.
This is due to the fear of investors that new bankruptcies will occur in the coming days. Only this Monday, the main US banks lost some 90,000 million dollars in the stock market, which brings their losses in the last three trading sessions to almost 190,000 million dollars.
Of the entire banking system, regional banks were the most affected. First Republic Bank shares fell more than 60%, as did those of Western Alliance Bancorp and PacWest Bancorp.
The effect crossed borders. The STOXX SX7P banking index closed down 5.7%. Germany’s Commerzbank fell 12.7%, while Credit Suisse plunged 9.6%, all dragged down by fears over Silicon Valley Bank’s sudden failure.
Biden asserted that “Americans can trust that the banking system is safe,” while promising tough new regulations following the biggest US bank failure since the 2008 financial crisis. “Your deposits will be there when you need them,” he said.
New CEO of SVB: “We are working as normal”
“When you take such a big and fast step, the first thing you think is that the crisis has been averted. But the second thought is: how big was that crisis, how big were the risks that had to be taken?” , reacted Rick Meckler, a partner at Cherry Lane Investments.
“There’s a sense of contagion, and when we see a rally around the financial sector, there’s a rally across all markets,” said Mark Dowding, chief investment officer at BlueBay Asset Management in London.
SVB clients have access to all their deposits and regulators have set up a new facility to give banks access to emergency funds, while the Federal Reserve has provided banks with emergency loans.
Tim Mayopoulos, the new CEO of SVB, assured that they are working normally within the US and that all deposits are protected by the Federal Deposit Insurance Corporation.
Regulators on Sunday closed Signature Bank of New York, which had come under pressure in recent days. Mark Sobel, a former US Treasury official and chairman of the OMFIF think tank, said that “a serious investigation needs to be carried out into why regulators missed the red flags and what needs to be reviewed.”
For many experts, the bankruptcy of these banks will not cause the Fed to turn off rate hikes by 0.25%, although there is a possibility that “they may even hold off raising interest rates for a meeting or two just to let for the financial system to settle down.
The most certain thing is that during the next meeting of the FED, on March 21 and 22, inflation will go to the background and it will be the crisis unleashed after the bank’s fall that “will absolutely dominate the discussion.”
With Reuters and EFE
