Silicon Valley Bank‘s collapse continued to pound global bank stocks on Tuesday as investors fretted over the financial health of some lenders, despite assurances from U.S. President Joe Biden and other policymakers.
Markets
* An indicator of credit risk in the euro area banking system leapt to its highest since mid-July.
* European .SX7P and UK .FTNMX301010 banks fell again after heavy losses on Monday, but the broader European index .STOXX steadied as interest-rate-sensitive real estate and technology stocks rose.
* U.S. regional banks bounced in premarket trading after brutal losses in recent days, with futures pointing to a modestly higher Wall St open. The large banks also rose in the premarket with Citi C.N up 2%, Wells Fargo WFC.N up 3% and JPMorgan JPM.N 1% higher.
* The dollar has weakened and bonds have been volatile as markets bet the Fed will slow, if not halt, its raising of interest rates to curb inflation after SVB’s collapse. Nomura even expects the Fed will cut rates next week.
* Short-end euro zone yields tumbled again as investors bet the European Central Bank would moderate its policy tightening at Thursday’s meeting.
* Short-dated U.S. Treasury yields US2YT=RR rose but remained at six-month lows following their biggest one-day drop since 1987 on Monday.
* The global flight to quality pushed the 10-year Japanese government bond yield to 0.24%, its lowest since November.
Reaction
* SVB’s collapse is not expected to affect euro zone banks, ECB policymaker Yannis Stournaras told Kathimerini newspaper. Denmark’s central bank also saw no challenge to financial stability.
* Overnight, Japanese policymakers played down risks to their economy and financial system. Canada’s finance minister met banking chiefs and the regulator, which took temporary control of SVB’s Canadian unit on Sunday.
* Since SVB’s collapse, big U.S. banks have been inundated with requests from customers who want to transfer their funds from smaller lenders, the Financial Times reported on Tuesday.
* Lloyds CEO Charlie Nunn said on Tuesday that British banks were not seeing a similar trend, adding: “What‘s happened with SVB is relatively idiosyncratic compared to the UK.”
Background
*Startup-focused lender SVB Financial Group SIVB.O collapsed on March 10, the biggest bank to fail since the 2008 financial crisis. State regulators also closed New York-based Signature Bank SBNY.O on Sunday.
*Banking regulators said on Sunday that SVB depositors would have access to their funds on Monday, putting to rest fears that startups would struggle to pay their employees this week.
* President Biden on Monday addressed the banking crisis, hinting at new regulation of banks. But he faces a divided Congress unlikely to approve tougher new rules.
*Some U.S. regional banks face increasing pressure, with industry executives and advisers saying they could be forced to seek saviors if a rout in their stocks doesn’t let up.
*Experts say regulators are likely to let their emergency measures take effect before intervening with any further steps to shore up confidence in the sector.
—Compiled by Sam Holmes and Catherine Evans; Editing by Alexander Smith
