Bank Stocks Tank on Market Open Despite White House’s Reassurance
Shares of US and European banks saw massive declines at Monday’s market open after the collapse of the Silicon Valley Bank (SBV) caused havoc in the banking sector. Following what economists consider the second-largest banking failure on record, many fear that recent events could have unprecedented implications for the broader economy. US President Joe Biden has assured that the “banking system is safe.”
Western Alliance, PacWest, and First Republic Plummet at Market Open
Bank stocks in the US and Europe saw a sharp drop as the market opened on Monday amid the ongoing sector rout triggered by the SBV collapse. Shares of Western Alliance Bancorp led the losses, plummeting more than 82%. First Republic Bank, PacWest Bancorp, and Metropolitan Bank also saw heavy losses, plunging 76%, 51%, and 56.5%, respectively.
The negative sentiment was also noticeable abroad, with Europe’s STOXX bank index tanking more than 7.7%. Shares of European banking giants, including Commerzbank and Credit Suisse, were deep into the red, each falling more than 14%. The broader market downturn drove the cost of insuring the bonds of Credit Suisse Group against default to the highest level on record.
As the SBV’s woes continued to deteriorate, the US regulators, including the Federal Reserve and the US Treasury, stepped in. To prevent a potential banking crisis, the regulators shuttered the SBV, marking the biggest banking failure since the global financial crisis in 2008.
Two days later, the regulators shut down the crypto-friendly Signature Bank, citing “systemic risk.” The regulators said depositors of both banks would be “made whole,” and the taxpayer would bear no losses.
According to Reuters estimates, the US banks lost more than $100 billion in stock market value last week after the SBV collapse, while European bank stocks sustained losses of around $50 billion.
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What is the Potential Impact of the SBV Fiasco?
As one of the critical banks serving tech startups and venture capital (VC) giants, the collapse of the SBV has sent shockwaves around the world. The impact has been felt instantly in the startup space, but many fear that the bank’s fallout could have significantly more far-reaching implications.
The collapse highlighted the growing financial instability within the tech sector, which has seen unprecedented growth over the past ten years. As the tech industry became a critical driver of growth and employment across numerous regions, further instability could knock on the broader economy, impacting other industries like real estate, retail, and manufacturing.
Meanwhile, economists believe that the world’s leading central banks could be forced to stop hiking interest rates due to the ongoing crisis, amid growing indications of financial strain linked to breakneck increases in borrowing costs over the past year. Markets rushed to re-price interest rate expectations as investors expect the Fed to be reluctant to raise rates next week amid current conditions.
How do you think the Fed will react to the recent events at its upcoming policy meeting? Let us know in the comments below.