March 14 (Reuters) – Shock waves from the collapse of Silicon Valley Bank (SIVB.O) hit global banking stocks further on Tuesday as assurances from President Joe Biden and other policymakers did little to calm markets and prompt a rethink of the interest rate outlook.
Biden’s efforts to reassure markets and savers came after emergency measures by the US to support banks by giving them access to additional funding failed to allay investors’ concerns about possible contagion to other lenders worldwide.
Banking stocks in Asia continued to fall, led by the Japanese banking sub-index (.IBNKS.T) which fell 6.7% in early trading to its lowest level since December.
“Bank runs have begun (and) interbank markets are under pressure,” said Damien Boey, chief equity strategist at Sydney-based investment bank Barrenjoey. “It’s arguable that liquidity measures should have stopped this dynamic, but Main Street has been watching the news and queues — not financial plumbing.”
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A furious race to adjust interest rate expectations also sent waves through the markets as investors bet the Federal Reserve will be reluctant to raise next week.
Traders currently see a 50% chance that rates will not be hiked at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis point increase was fully priced in, with a 70% chance of 50 basis points.
As investors feared further failures, major US banks lost about $90 billion in market capitalization on Monday, bringing their losses over the past three trading sessions to nearly $190 billion.
Regional US banks were hit hardest. Shares of First Republic Bank (FRC.N) fell more than 60% as news of new funding failed to reassure investors and rating agency Moody’s rated it for a downgrade.
The European STOXX banking index (.SX7P) closed 5.7% lower. Germany’s Commerzbank (CBKG.DE) fell 12.7% and Credit Suisse (CSGN.S) fell 9.6% to a record low.
Biden said his administration’s actions meant “Americans can trust that the banking system is safe,” while also promising stricter regulation following 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 clients 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 clients, SVB’s new CEO, Tim Mayopoulos, said the bank was open and doing business in the United States as usual and is expected 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 wonderful community we serve,” said Mayopoulos, a former CEO of federal mortgage lender Fannie Mae, which was appointed by the FDIC to run SVB.
US banking regulators on Monday tried to reassure nervous customers queuing outside SVB’s headquarters in Santa Clara, California, offering coffee and donuts.
“Feel free to continue as usual. We are just asking for some time due to volume,” FDIC employee Luis Mayorga told waiting customers.
Regulators also moved quickly to shut down New York’s Signature Bank SBNY.O, which had come under pressure in recent days.
“There needs to be a serious look into why regulators missed red flags… and what needs to be reviewed,” said Mark Sobel, a former senior Treasury official and chair of the Official Monetary and Financial Institutions Forum, a think tank.
OUTPUT
In money markets, indicators of credit risk in the banking systems of the US and the Eurozone rose slightly.
Buoyed by bets the Fed should have to slow its rate hikes, the price of gold, a popular safe haven, shot above the key $1,900 level.
Companies around the world with SVB accounts rushed to assess the impact on their finances. In Germany, the central bank convened its crisis team to assess any consequences.
After marathon weekend talks, HSBC HSBA.L said it bought SVB’s UK arm for one pound ($1.21).
Although SVB UK is small, its sudden demise led to calls for government support for the UK startup industry, and in particular the heavily exposed biotech sector.
British Prime Minister Rishi Sunak said there are no concerns about systemic risk.
“Our banks are well capitalised, liquidity is strong,” Sunak told ITV during a visit to the United States.
In China, where SVB was the most important foreign bank for most start-ups, entrepreneurs and venture capital funds were also looking for alternative financing.
Reporting by Trevor Hunicutt in Washington, Alun John in London and Tom Westbrook in Singapore Additional reporting by Rae Wee in Singapore Writing by Lincoln Feast Editing by Anna Driver and Sam Holmes
Our Standards: The Thomson Reuters Principles of Trust.
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