Banking Review: What You Need to Know About Sector Shocks

Markets fell sharply on Wednesday as the financial sector took a double hit from the ongoing fallout from the collapse of Silicon Valley Bank (SVB) and worries about the health of Europe’s second-biggest bank, Credit Suisse, which has turned to the Swiss government for bailouts.

The total market capitalization of the six largest US banks is down $183 billion from Feb. 1 due to the bankruptcies of SVB and Signature Bank, and now due to the debacle of European banks. Bloomberg counted.

While emergency U.S. government action over the weekend appears to have eased some of the worries earlier this week about SVB and Signature Bank, investors and bankers are now on high alert as to which segments of the banking industry could be at risk. next.

The Dow Jones Industrial Average fell more than 1.6%, or 550 points, just before 2 pm Wednesday, while the S&P 500 shed more than 1.5% of its value.

The Nasdaq Tech Index, which has experienced strong volatility over the past six months, has fallen more than 140 points, or about 0.9 percent.

Here’s what you need to know about how the collapse of the Silicon Valley bank sent the entire financial system into turmoil.

Credit Suisse fears infection

FILE – Gray clouds cover the sky over the Credit Suisse bank building in Zurich, Switzerland, February 21, 2022. (Ennio Leanza/Keystone via AP, file)

Credit Suisse has become the latest major bank to face a crisis of confidence after the collapse of SVB heightened global concerns about the solvency of troubled financial firms.

Shares of Credit Suisse fell more than 30 percent in European trading on Wednesday after a spokesman for the National Bank of Saudi Arabia – Credit Suisse’s largest shareholder – told Reuters it would not increase funding for the beleaguered central bank.

The value of Credit Suisse bonds also fell sharply, and traders bet on the bank’s default.

Credit Suisse officials earlier in the day insisted the bank was in good financial shape.

But late on Wednesday, the bank’s call for help to the Swiss National Bank and the country’s top banking regulator showed just how dire the situation has become.

Need to know more? Five things to know about the Silicon Valley Bank takeover

“Any troubled bank will face rising funding costs, so banking turmoil will remain a Wall Street focus,” Edward Moya, senior market analyst at investment firm OANDA, wrote in an analysis on Wednesday.

In addition to being the second largest bank in Europe, Credit Suisse has a significant presence in the US and is subject to strict Federal Reserve supervision and stress testing.

Further trouble for Credit Suisse, which has been embroiled in scandals and financial troubles for years, could prompt the Fed to intervene.

US regional banks lose even more value

The window of the First Republic Bank reflects the buildings, Monday, November 27, 2017, New York. (AP Photo/Mark Lennihan)

The collapse of Silicon Valley Bank and Signature Bank over the weekend drew attention to other regional banks with similar financial problems.

Moody’s Analytics placed six large regional banks on pending downgrades, citing their heavy reliance on uninsured deposits and declining value of their long-term investments, two issues that led to the downfall of SVB and Signature.

Shares in these banks fell throughout the week, falling on Monday and recovering on Tuesday, before crashing again on Wednesday.

Shares in First Republic Bank, another California bank with tens of billions of dollars in uninsured deposits, were down more than 21 percent by Wednesday afternoon.

Slides Continue: Moody’s Downgrades Six U.S. Banks After SVB Crash

First Republic is one of six banks named by Moody’s, and investors are worried it could be the next US firm to fail, despite bank officials expressing confidence in its reputation.

“This crisis will end when consumers and businesses no longer have doubts about the solvency of their banking institutions,” Zachary Feinstein, assistant professor at Stevens Institute of Technology and director of its financial technology program, told The Hill in an email.

“This event is really about trust,” he added. “The scale can be measured primarily by sentiment, not by the numbers you find on balance sheets.”

Markets oscillate between relief and fear

Traders work on the floor of the New York Stock Exchange in New York, Monday, March 13, 2023.

Financial markets have been all over the place this week. After the Federal Deposit Insurance Corporation (FDIC) bailed out SVB and Signature over the weekend, markets opened higher on Monday but lost their gains on concerns about continued contagion of small and medium-sized banks.

Stock markets rallied on Tuesday on hopes that the collapse of the SVB would send a signal to the Fed that it had raised interest rates high enough that further slowing rate hikes would be deemed unwise. But these achievements were largely destroyed.

On Wednesday, concerns about Credit Suisse exacerbated concerns in the US financial sector. Financial giant Blackrock CEO Larry Fink warned of “more seizures and closures” in his annual letter to investors, adding fuel to the fire.

House Financial Services Committee member Blaine Lutkemeyer (R-Missouri) told Politico on Wednesday that the government should temporarily insure all US bank deposits.

“If you don’t, your small banks will start raiding,” he told Politico. “Everyone will take their money and run to JPMorgan and these too big to fail banks and they will get bigger and everyone else will get smaller and weaker and that’s really going to be bad for our system.”

Regulators under fire for lack of signs

Federal Reserve Chairman Jerome Powell adjusts his tie before discussing his semi-annual report on monetary policy to Congress before the House Financial Services Committee on Wednesday, March 8, 2023.

SVB deposits have risen sharply over the past two years, nearly doubling from $115 billion in 2020 to $212 billion by the end of 2022.

It’s something that, along with the bank’s exposure to higher interest rates, should have caught the attention of regulators, Republicans say.

“These banks followed the same strict standards as required by Dodd-Frank, and they did not meet the requirements of supervision in relation to interest rate risk. This could have been seen by regulators,” Senate Finance Committee member Mike Crapo (R-Idaho) told Fox Business on Wednesday.

“The heads of the banks did not properly protect the liquidity of their assets, and the supervisors did not notice this quickly enough,” he said.

What have the regulators missed? Silicon Valley, Subscription banks actively lobbied for relaxation of banking rules

Democrats say the current crisis could have been avoided if Congress hadn’t passed the 2018 deregulation bill, which would overturn the Dodd-Frank rules enacted after the 2008 financial crisis.

“Let’s be clear. The failure of Silicon Valley Bank is a direct result of the absurd 2018 bank deregulation bill signed by Donald Trump, which I strongly opposed,” Bernie Sanders (I-Vt.) wrote in a statement Sunday.

“Five years ago, the Republican director of the Congressional Budget Office released a report saying this legislation would “increase the likelihood of a large financial firm with $100 billion to $250 billion in assets going bankrupt.” Unfortunately, that is exactly what happened,” he wrote.

This is not the crisis of 2008more

The collapse of the SVB was the biggest banking collapse since 2008, when the global financial crisis plunged the world into recession and plunged millions of Americans into severe hardship.

Politicians, bankers, and investors around the world are still trying to understand why SVB failed, what they say about the strength of the financial system, and new ways to spread fears of financial contagion through social media, a new technology that emerged in 2008. panic.

While it’s too early to tell how many more banks could be in serious trouble, there’s reason to believe the world is still alive after the 2008-style crash that brought down the entire financial system.

SVB and Signature have been closely associated with the technology sector. Both banks were unusually dependent on the fortunes of large technology companies and were vulnerable to higher interest rates, which added to their financial problems this year.

SVB and Signature also had surprisingly close-knit client communities, whose panic accelerated the run-ins both banks faced.

5 Things You Need to Know About the Silicon Valley Bank Investigation

“These failures are especially surprising after a long period of calm in the banking system. There were no bankruptcies last year and the year before. The system shows robust credit growth, unusually few credit problems and good profitability,” wrote Mark Zandi, chief economist at Moody’s Analytics, in research note on monday.

“These are not the conditions that have historically been the cause of problems in the system,” Zandi wrote.

Although Credit Suisse has not been as reliant on tech firms or uninsured deposits, a series of funding problems and scandals have tarnished the bank’s finances and reputation. Years of waning faith in Credit Suisse have made it more vulnerable to fears of collapse.

Copyright 2023 Nexstar Media Inc. All rights reserved. This material may not be published, broadcast, rewritten or distributed.

Content Source

News Press Ohio – Latest News:
Columbus Local News || Cleveland Local News || Ohio State News || National News || Money and Economy News || Entertainment News || Tech News || Environment News

Related Articles

Back to top button