by March 14 (Reuters) – Shockwaves from the collapse of Silicon Valley Bank (SIVB.O) further battered global bank stocks on Tuesday, as reassurances from President Joe Biden and other policymakers did little to calm markets and lead to a rethinking the interest rate outlook.
Biden’s efforts to reassure markets and depositors came after US emergency measures to prop up banks through access to additional funding failed to allay investor concerns about possible contagion to other lenders around the world.
Bank stocks in Asia continued their declines, with Japan’s banking sub-index (.IBNKS.T) leading the decline, falling 6.7% in early trade to its lowest level since December.
“Bank runs have started (and) interbank markets are stressed,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “Liquidity actions should have arguably halted this momentum, but Main Street was watching news and queues — not financial installs.”
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A furious race to reassess interest rate expectations also made waves through markets as investors bet the US Federal Reserve will hesitate to hike rates next week.
Traders currently see a 50% chance of no rate hike at this meeting, with rate cuts priced in for the second half of the year. Earlier last week, a 25 basis point hike was fully priced in with a 70% probability of 50 basis points.
As investors fear more defaults, major U.S. banks shed around $90 billion in market value on Monday, bringing their loss to nearly $190 billion over the past three trading sessions.
Regional US banks were hardest hit. Shares in First Republic Bank (FRC.N) fell more than 60% as news of new funding failed to reassure investors and rating agency Moody’s scrutinized it for a downgrade.
The European banking index STOXX (.SX7P) closed 5.7% lower. Germany’s Commerzbank (CBKG.DE) fell 12.7% and Credit Suisse (CSGN.S) slipped 9.6% to a record low.
Biden said his administration’s actions mean “Americans can have confidence that the banking system is safe,” while pledging tighter regulation after the biggest US bank failure since the 2008 financial crisis.
“Your deposits will be there when you need them,” he said.
ACCESS TO DEPOSITS
SVB customers will have access to all their deposits from Monday and regulators have set up a new facility to give banks access to emergency funds. The Fed made it easier for banks to borrow from it in emergencies.
In a letter to customers, SVB’s new CEO Tim Mayopoulos said the bank is open and conducting business as usual in the United States and expects to resume cross-border transactions in the coming days.
“I recognize that the past few days have been an extremely challenging time for our customers and our employees, and we are grateful for the support of the amazing community we serve,” said Mayopoulos, a former CEO of state-owned mortgage lender Fannie Mae of the FDIC appointed to direct SVB.
U.S. banking regulators tried Monday to calm nervous customers who queued outside SVB’s Santa Clara, Calif., headquarters for coffee and donuts.
“Feel free to continue conducting business as usual. We’re just asking for a little time due to volume,” FDIC official Luis Mayorga told waiting customers.
New York signature bank SBNY.O, which had come under pressure in recent days, was also quickly shut down by regulators.
“There needs to be a serious investigation into why regulators have missed red flags… and what needs to be revised,” said Mark Sobel, a former senior Treasury Department official and US chair of the Official Monetary and Financial Institutions Forum, a think tank.
STAND OUT
On the money markets, credit risk indicators in the US and eurozone banking systems rose slightly.
Encouraged by bets that the Fed may have to slow rate hikes, gold prices, a popular safe haven, soared above the key $1,900 level.
Businesses around the world with SVB accounts rushed to assess the impact on their finances. In Germany, the central bank has convened its crisis team to assess any consequences.
After marathon talks over the weekend, HSBC told HSBA.L it would buy SVB’s UK arm for a pound ($1.21).
Although SVB UK is small, its sudden demise has prompted calls for government help for the UK start-up industry and particularly the highly exposed biotech sector.
British Prime Minister Rishi Sunak said there were no systemic risk concerns.
“Our banks are well capitalised, liquidity is strong,” Sunak told ITV during a visit to the US.
In China, where SVB was the main foreign bank for the majority of start-ups, entrepreneurs and venture funds were also looking for alternative financing options.
Reporting by Trevor Hunicutt in Washington, Alun John in London and Tom Westbrook in Singapore Additional reporting by Rae Wee in Singapore Writing from Lincoln Feast Editing by Anna Driver and Sam Holmes
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