On Tuesday, after assurances from President Joe Biden and other authorities failed to soothe the markets and triggered a reevaluation of the outlook for interest rates, the fallout from the failure of Silicon Valley Bank further battered international bank equities.
According to Reuters, Biden’s attempts to assuage investors’ concerns about a possible spread of the crisis to other lenders across the world came after emergency U.S. measures to support banks by providing them with access to additional money, failed to work.
Tuesday saw further falls in banking stocks throughout Asia, with Japanese companies being hammered particularly hard and the whole market falling due to concerns about systemic risk.
The chief equity strategist at Sydney-based investment bank Barrenjoey, Damien Boey, said; “Bank runs have started (and) interbank markets have become stressed.
“Arguably, liquidity measures should have stopped these dynamics but Main Street has been watching news and queues – not financial plumbing.”
Investors who gambled that the Federal Reserve won’t hike next week caused a frantic dash to reprice interest rate expectations, which also sent shockwaves through the markets.
With rate reduction anticipated for the second half of the year, traders presently expect a 50% chance that there won’t be a rate hike at that meeting.
A 25 basis-point increase was completely anticipated early last week, with a 70% likelihood that it would rise to 50 basis points.
According to analysts, the sector is still plagued by uncertainty as investors remain very concerned about the health of smaller international banks, the possibility of stricter regulation, and a preference to protect depositors over shareholders should other banks fail.
Leading American banks suffered a loss in stock market value of over $90 billion on Monday, raising their loss over the previous three trading sessions to almost $190 billion.
Local American banks took the biggest impact. First Republic Bank’s stock fell more than 60% after investors were unconvinced by rumors of new financing, and rating agency Moody’s considered downgrading the bank.
The STOXX banking index for Europe finished 5.7% down. Commerzbank of Germany dropped 12.7%, and Credit Suisse dropped 9.6% to a record low.
In response to the worst U.S. bank failure since the 2008 financial crisis, Biden claimed his administration’s measures meant “Americans can have confidence that the banking system is safe.” He also promised tougher regulation.
He added, “Your deposits will be there when you need them.”
