by March 17 (Reuters) – Regulators at the European Central Bank see no contagion to euro-zone banks from the latest turmoil, a source said on Friday after US lenders First Republic Bank (FRC.N) offered a 30 billion lifeline US dollars tossed and record amounts tapped by the federal government Reserve.
Big US banks stepped in on Thursday to bail out the San Francisco-based lender caught in market volatility sparked by the collapse of two other mid-sized US banks.
The bailout came shortly after ailing Credit Suisse (CSGN.S) drew up to $54 billion in emergency central bank credit to shore up its liquidity. Shares in Switzerland’s second largest bank fell again on Friday despite the move.
The ECB, which raised interest rates on Thursday, held another ad hoc supervisory board meeting earlier this week in an unusual move ahead of a scheduled meeting next week.
ECB supervisors did not see the market turmoil contaging euro-zone banks, a source familiar with the meeting told Reuters, adding that supervisors were told deposits in euro-zone banks remained stable and exposure was at is immaterial to Credit Suisse.
“While markets are relieved that the Swiss central bank has intervened, sentiment is bound to remain very fragile as investors are likely to worry about the potential economic impact of aggressive monetary tightening by the ECB,” said Frédérique Carrier, head of the investment strategy for RBC Wealth Management.
Frankfurt-listed shares of First Republic were up as much as 5% in early trade on Friday. Shares of the bank closed up 10% in New York on Thursday but fell 17% in after-market trading after it revealed its cash position and needed emergency liquidity. They were said to be 5% lower in US premarket trading on Friday.
While the two deals and actions by policymakers have helped calm global markets somewhat, after a hot week for bank stocks, analysts and investors are still concerned that the potential for a full-blown banking crisis is far from over.
The level of stress was underscored by Thursday’s data showing banks in the US have requested record amounts of emergency liquidity from the Fed in recent days, sending the central bank’s balance sheet soaring after months of contraction.
The deal with the First Republic was put together by those in power including US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and JP Morgan CEO Jamie Dimon, a source familiar with the situation said.
“They’re going to keep the money in First Republic to keep it alive out of self-interest… to stop the bank run. Then they will gradually take it away and the bank will play out a slow death,” Mathan Somasundaram, founder of research firm Deep Data Analytics in Sydney, said on Friday.
Some of the largest US banks such as JP Morgan Chase & Co (JPM.N), Citigroup Inc (CN), Bank of America Corp (BAC.N), Wells Fargo & Co (WFC.N), Goldman Sachs (GS.N ) and Morgan Stanley (MS.N) were involved in the rescue, according to the banks.
While support has prevented an imminent collapse, investors were spooked by First Republic’s late releases.
“People are concerned that the risk of contagion is real and that is shaking confidence,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets.
“I don’t think we are at the heart of a global financial crisis. Balance sheets are much better than 2008, banks are better regulated,” she added.
Credit Suisse became the first major global bank to deploy a lifeline since the 2008 financial crisis amid doubts over central banks’ ability to sustain aggressive rate hikes to curb inflation.
LESSONS FROM 2008
For now, authorities are confident in the banking system’s resilience and have tried to emphasize that the current turmoil is different from the global financial crisis 15 years ago, with banks better capitalized and funds more readily available.
The ECB pushed for its 50bps rate hike, arguing that eurozone banks are in good shape and that higher rates should rather strengthen their margins.
The focus now turns to the Fed’s policy decision next week and whether it will stick with its aggressive rate hikes to keep inflation under control.
In Asia, Singapore, Australia and New Zealand said they are watching financial markets but are confident their local banks are well capitalized and able to withstand major shocks.
While capital remains adequate, analysts say a A$300 billion ($201 billion) refinancing task for Australia’s biggest banks will soon become more difficult as appetite for new debt dwindles.
Japan’s finance ministry, financial regulator and central bank said they would meet on Friday to discuss developments.
Bank stocks have been battered around the world since Silicon Valley Bank collapsed last week on bond-related losses that piled up as interest rates rose over the past year, raising questions about what else might be lurking in the broader banking system.
Reporting by Pete Schroeder and Chris Prentice in Washington, Nupur Anand in New York, Tom Westbrook and Rae Wee in Singapore, Scott Murdoch in Sydney, Noel Randewich in Oakland, California, Balazs Koranyi, Francesco Canepa and John O’Donnell in Frankfurt, John Revill in Zurich; writing by Deepa Babington, Sam Holmes and Alexander Smith; Edited by Sonali Paul and Kirsten Donovan
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