Biden pledges “whatever is necessary” for US banking system as SVB bumps stocks

March 13 (Reuters) – Bank stocks around the world fell on Monday, even as President Joe Biden pledged to take the necessary steps to ensure the safety of the U.S. banking system following the sudden collapse of Silicon Valley Bank ( SIVB.O ) and Signature Bank ( SBNY.O).

Biden’s efforts to reassure markets and depositors came after US emergency measures to guarantee deposits at both banks failed to allay investor concerns about potential contagion to other lenders worldwide.

Major U.S. banks lost more than $70 billion in stock market value on Monday, bringing their total losses over the past three days to about $170 billion.

Shares in First Republic Bank (FRC.N) fell as much as 76.6% despite news that it had secured new financing, while Western Alliance Bancorp (WAL.N) and PacWest Bancorp (PACW.O) decreased by 82.5% and 53%, respectively. Trading in the shares was halted several times due to volatility.

Latest updates

See 2 more stories

First Republic had been able to meet withdrawal demands on Monday with the help of additional funding from JP Morgan Chase, the mid-cap lender’s executive chairman Jim Herbert told CNBC, adding that they did not see a massive deposit outflow.

Shockwaves were also felt in Europe, where the STOXX banking index (.SX7P) closed 5.7% lower. Germany’s Commerzbank ( CBKG.DE ) fell 12.7%, while Credit Suisse ( CSGN.S ) fell 9.6% to a new record low.

Swiss financial regulator FINMA said it is closely monitoring banks and insurers, while a senior European Central Bank supervisor said the board overseeing the euro zone’s biggest banks saw no need for an emergency meeting.

Biden said his administration’s actions over the weekend meant “Americans can have confidence that the banking system is safe,” as he promised tighter regulation after the biggest U.S. banking collapse since the 2008 financial crisis.

“Your deposits will be there when you need them,” he said.

Shares in U.S. banking giants JP Morgan Chase ( JPM.N ), Morgan Stanley ( MS.N ) and Bank of America ( BAC.N ) weakened nonetheless.

An administration official said there was no timetable for Biden to make any requests to Congress as his aides were still working to manage the immediate situation and better understand what caused the crisis and what to ask lawmakers.

In the money markets, indicators of credit risk in the US and Eurozone banking systems rose. Europe’s volatility index (.V2TX) jumped to the highest level since October 2022.

“When a step (is taken) this big, this quickly, your first thought is ‘crisis averted’. But your second thought is how big was that crisis, how big were the risks for this step to be taken?” said Rick Meckler, partner at Cherry Lane Investments.

Buoyed by bets that the US Federal Reserve may have to slow its interest rate hikes and with investors seeking safe havens, gold rose towards the key $1,900 level.

“There is a sense of contagion and where we see a repricing around financials leads to a repricing across markets,” said Mark Dowding, chief investment officer at BlueBay Asset Management in London.

US regulators stepped in on Sunday after the collapse of SVB, which had seen a run for a large bond portfolio hit.

SVB Financial Group ( SIVB.O ) and two top executives were sued on Monday by shareholders who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit “particularly susceptible” to a bank run.

The proposed class action against SVB, CEO Greg Becker and CFO Daniel Beck was filed in federal court in San Jose, California.

SVB’s customers will have access to all their deposits starting Monday, and regulators set up a new facility to give banks access to emergency funds, and the Federal Reserve made it easier for banks to borrow from it in emergencies

Regulators also moved quickly to shut down New York’s Signature Bank, which had come under pressure in recent days.

“There needs to be a serious investigation into why regulators missed red flags … and what needs to be reviewed,” said Mark Sobel, a former senior Treasury secretary and US chairman of the OMFIF think tank.


Companies across the globe with SVB accounts rushed to assess the impact on their finances, while Germany’s central bank called in its crisis team to assess any fallout.

And after marathon weekend talks, HSBC HSBA.L said it was buying SVB’s British arm for one pound ($1.21).

While SVB UK is small, its sudden demise led to calls for government help for Britain’s start-up industry, and in particular its highly vulnerable biotech sector.

Prime Minister Rishi Sunak added his voice to those in Britain, saying there was no concern about systemic risk.

“Our banks are well capitalised, liquidity is strong,” Sunak told ITV during a visit to the US.

A furious race to reprice interest rate expectations also sent ripples through markets as investors bet the Fed will be reluctant to hike next week.

Traders currently see a 50% chance of no rate hike at that meeting, with rate cuts factored in for the second half of the year. At the start of last week, a 25 basis point increase was fully priced in, with a 70% chance seen at 50 basis points.

Two-year U.S. Treasury yields last fell 55 bps to around 4.09% set for their biggest one-day drop since 1987, according to Refinitiv data. SVB’s collapse comes alongside the closure of crypto-focused bank Silvergate ( SI.N ), which last week revealed plans to wind down operations and voluntarily liquidate, in the wake of FTX’s implosion last year.

“The events unfolding are testing the post-crisis regulatory set-up,” said Marco Troiano, Head of Financial Institutions Ratings at Scope Ratings.

“The only contagion I can see is if investors started to believe that despite all the constraints banks have faced post-GFC (global financial crisis), they are not the low-risk business we thought they had become .”

Reporting by Rae Wee, Alun John, Amanda Cooper, Lucy Raitano, Pete Schroeder, Valentina Za, Andrea Shalal, Heather Timmons, Jonathan Stempel and Noel Randewich; Additional reporting by Dhara Ranasinghe; Writing by Alexander Smith; Editing by Elisa Martinuzzi and Catherine Evans

Our standards: Thomson Reuters Trust Principles.

Leave a Reply

Scroll to Top
%d bloggers like this: