Biden promises ‘whatever it takes’ for US banking system as SVB shocks stocks

Bank stocks around the world tumbled on Monday despite President Joe Biden pledging to take whatever action is needed to keep the US banking system safe following the sudden collapse of Silicon Valley Bank and Signature Bank.

Biden’s efforts to reassure markets and depositors came after emergency measures by the United States to guarantee deposits at both banks failed to allay investor concerns about possible contagion to other lenders around the world.

Major US banks lost more than $70 billion in market value Monday, bringing their total loss over the past three days to about $170 billion.

Shares in First Republic Bank plunged as much as 76.6 percent amid news it had secured new funding, while Western Alliance Bancorp and PacWest Bancorp fell 82.5 percent and 53 percent, respectively. Trading in the shares has been halted several times due to volatility.

First Republic was able to meet payout requests Monday with the help of additional funding from JP Morgan Chase, Jim Herbert, the mid-cap lender’s executive chair, told CNBC, adding that there was no massive cash outflow.

Shockwaves were also felt in Europe, where the STOXX banking index closed 5.7 percent lower. Germany’s Commerzbank fell 12.7 percent, while Credit Suisse slipped 9.6 percent to a new record low.

Switzerland’s financial regulator FINMA said it was closely monitoring banks and insurers, while a senior supervisor at the European Central Bank said the board, which oversees the eurozone’s biggest banks, sees 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,” while pledging tighter regulation after the biggest US bank failure since the 2008 financial crisis.

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

Shares in US banking giants JP Morgan Chase, Morgan Stanley and Bank of America nonetheless fell.

An administration official said there was no timeline for Biden to direct requests to Congress as his staffers were still working to manage the immediate situation and better understand what caused the crisis and what to ask of lawmakers.

On the money markets, credit risk indicators in the US and eurozone banking systems rose slightly. Europe’s volatility index jumped to its highest level since October 2022.

“When such a big step is taken so quickly, your first thought is ‘crisis averted’. said Rick Meckler, partner at Cherry Lane Investments.

Encouraged by bets that the US Federal Reserve may need to slow rate hikes and investors looking for safe havens, gold prices rushed towards the key $1,900 level.

“There is a sense of contagion and where we are seeing a re-rating in financials is leading to a re-rating across all markets,” said Mark Dowding, chief investment officer at BlueBay Asset Management in London.

US regulators intervened on Sunday following the collapse of SVB, which had experienced a run after a major damage to its bond portfolio.

SVB Financial Group and two top executives were sued Monday by shareholders who accused them of concealing how rising interest rates would make their Silicon Valley Bank unit “particularly vulnerable” to a bank run.

The proposed class action lawsuit against SVB, Chief Executive Greg Becker and Chief Financial Officer Daniel Beck has been filed in federal court in San Jose, California.

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

Regulators were also quick 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 have missed red flags… and what needs to be revised,” said Mark Sobel, a former senior Treasury Department official and US chair of think tank OMFIF.

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Businesses around the world with SVB accounts rushed to assess the impact on their finances, while in Germany the central bank has convened its crisis team to assess any fallout.

And after marathon talks over the weekend, HSBC said it would buy SVB’s UK arm for a pound ($1.21).

Although SVB UK is small, its sudden collapse has prompted calls for government help for the UK start-up industry and particularly the highly exposed biotech sector.

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

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

A furious race to reassess interest rate expectations also made waves through markets as investors bet the Fed will hesitate to hike rates next week.

Traders currently see a 50% chance of no rate hike at this meeting, with rate cuts priced in for the second half of the year. Earlier last week, a 25 basis point hike was fully priced in with a 70% probability of 50 basis points.

Two-year US Treasury yields were last down 55 basis points to around 4.09% in what was set for the biggest one-day fall since 1987, according to Refinitiv data.

SVB’s collapse comes alongside the shutdown of crypto-focused bank Silvergate, which last week announced plans to go out of business and go into voluntary liquidation following last year’s FTX implosion.

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

“The only contagion I can see is that investors are starting to believe that despite all the restrictions they faced in the wake of the GFC (Global Financial Crisis), banks are not the low-risk businesses we thought they were .”