US authorities have pledged to to fully protect all depositors and give back-up to any lenders struggling to find cash
London (AFP) - European stocks tanked Monday while US stocks fell as investors shrugged off global efforts to stem a fast-moving crisis emanating from the US banking sector.
The dollar fell as the turmoil sparked uncertainty over the US Federal Reserve’s plans to hike interest rates, while oil prices slumped.
Fears that the collapse of Silicon Valley Bank (SVB) on Friday could spark contagion throughout the banking system forced the Fed, the Treasury Department and Federal Deposit Insurance Corp. over the weekend to promise to fully protect all depositors and give backup to any lenders struggling to find cash, providing easier terms on short-term loans.
US President Joe Biden said Monday that “Americans can have confidence that the banking system is safe” as he vowed to push for tougher regulations on banks.
Wall Street opened lower, with the Dow and Nasdaq dropping 0.7 percent, while the S&P 500 fell 1.0 percent.
But Briefing.com analyst Patrick O’Hare said: “Looking at the bank stocks doesn’t engender a lot of confidence either that the problem has been solved.”
Shares in First Republic Bank tumbled 65 percent, PacWest Bancorp 35 percent, Comerica 33 percent and KeyCorp 23 percent as trading got underway.
O’Hare pointed to an emerging credibility problem for the Fed in its role as bank regulator.
“The speed at which Silicon Valley bank collapsed makes it look like the Fed was asleep at the switch as a regulator; and to be sure, Fed chair Powell didn’t sound any alarms about banking issues in his semi-annual monetary policy testimony last week,” he said.
- ‘Weakest link’ -
Fears about contagion dominated trading in Europe.
Germany’s finance watchdog insisted the collapse of Silicon Valley Bank (SVB) posed no threat to financial stability, and France’s economy minister declared US bank failures had no contagion risk.
However, European equities tipped deep into the red, with bank shares falling particularly hard in Italy and Switzerland.
Frankfurt and Paris stock markets dropped by about three percent as trading in NY got underway, while Milan dived almost five percent at one stage.
London fell 2.5 percent with losses capped after HSBC agreed to buy SVB’s UK division for a nominal £1 ($1.2).
“Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe,” City Index analyst Fiona Cincotta told AFP.
“Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links as fears rise.”
Asian stocks diverged on US pledges to backstop troubled lenders after the collapse of SVB was followed by the failure of Signature Bank.
US authorities unveiled sweeping measures to ease concerns over the health of the banking system but it was insufficient to soothe market fears of an imploding banking sector.
- Fed plans -
Friday’s collapse of SVB, which specialised in venture-capital financing largely in the tech sector, came after a huge run on deposits left it unable to stay afloat on its own.
SVB is the largest retail bank to fall since the 2008 financial crisis.
Its problems had built up as the US Federal Reserve’s interest rate hikes meant securities it owned were selling for significantly less – a problem other banks could face.
On Sunday, New York regulators said they had closed another lender, Signature Bank.
The Fed, the Treasury Department and Federal Deposit Insurance Corp. in a joint statement said SVB depositors would have access to “all of their money” starting Monday, March 13, and that taxpayers will not have to foot the bill.
The SVB crisis will complicate the Fed’s plans to further hike interest rates as it struggles to rein in inflation, with investors now expecting it will lift them just 25 basis points at its next meeting, rather than the 50 points tipped last week.
“The Fed is now in question over even a 25-point hike at the next meeting,” Strategic Alpha analyst Maurice Pomery told AFP.
“The issue for me is that many businesses were constructed on zero interest rates, leverage and debt model – which with rising rates is no longer viable,” he warned.
- Key figures around 1330 GMT -
London - FTSE 100: DOWN 2.5 percent at 7,554.42 points
Frankfurt - DAX: DOWN 3.2 percent at 14,940.80
Paris - CAC 40: DOWN 3.1 percent at 7,000.76
Milan - FTSE MIB: DOWN 3.8 percent at 26,242.27
EURO STOXX 50: DOWN 3.3 percent at 4,088.62
New York - Dow: DOWN 0.7 percent at 31,678.42
S&P 500: DOWN 1.0 percent at 3,824.32
Nasdaq Composite: DOWN 0.7 percent at 11,060.28
Tokyo - Nikkei 225: DOWN 1.1 percent at 27,832.96 (close)
Hong Kong - Hang Seng Index: UP 2.0 percent at 19,695.97 (close)
Shanghai - Composite: UP 1.2 percent at 3,268.70 (close)
Dollar/yen: DOWN at 132.66 yen from 135.09 yen on Friday
Euro/dollar: UP at $1.0705 from $1.0643
Pound/dollar: UP at $1.2096 from $1.2035
Euro/pound: UP at 88.50 pence from 88.40 pence
West Texas Intermediate: DOWN 4.3 percent at $73.41 per barrel
Brent North Sea crude: DOWN 3.8 percent at $79.61 per barrel