A furious race to reprice interest rate expectations also sent waves through markets as investors bet the Federal Reserve will be reluctant to hike next week.
“Even if the collapse of several mid-tier banks doesn’t develop into a full-blown systemic crisis, it will more than likely trigger a credit crunch,” said Paul Ashworth, Chief North America Economist at Capital Economics.
Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts priced in for the second half of the year. Early last week, a 25 basis-point hike was fully priced in, with a 70% chance seen of 50 basis points.
With investors fearing additional failures, major US banks lost around $90 billion in stock market value on Monday, bringing their loss over the past three trading sessions to nearly $190 billion.
Regional US banks were hit the hardest. Shares of First Republic Bank tumbled more than 60% as news of fresh financing failed to reassure investors, and so did Western Alliance Bancorp and PacWest Bancorp.
Europe’s STOXX banking index closed 5.7% lower. Germany’s Commerzbank fell 12.7% and Credit Suisse slid 9.6% to a record low.
Biden said his administration’s actions meant “Americans can have confidence that the banking system is safe,” while also promising stiffer 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’s customers will have access to all their deposits from Monday and regulators 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.
US bank regulators sought to reassure nervous customers on Monday who lined up outside SVB’s Santa Clara, California, headquarters, offering coffee and donuts.
“Feel free to transact business as usual. We just ask for a little bit of time because of the volume,” FDIC employee Luis Mayorga told waiting customers.
Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days.
“A serious investigation needs to be undertaken on why the regulators missed red flags … and what needs to be overhauled,” said Mark Sobel, a former senior Treasury official and US chair of the Official Monetary and Financial Institutions Forum, a think tank.
fallout
In the money markets, indicators of credit risk in the US and euro zone banking systems edged up.
Emboldened by bets the Fed may have to slow its rate hikes, the price of gold, a popular safe-haven raced above the key $1,900 level.
Companies around the globe with SVB accounts rushed to assess the impact on their finances. In Germany, the central bank agreed its crisis team to assess any fallout.
After marathon weekend talks, HSBC HSBA.L said it was buying the British arm of SVB for one pound ($1.21).
While SVB UK is small, its sudden demise prompted calls for government help for Britain’s startup industry, and its heavily exposed biotech sector in particular.
UK Prime Minister Rishi Sunak said there was no concern about systemic risk.
“Our banks are well capitalised, the liquidity is strong,” Sunak told ITV during a visit to the United States.
In China, where SVB was the main go-to foreign bank for the majority of start-ups, entrepreneurs and venture funds were also scrambling for alternative funding.
