This morning, trading was halted in dozens of regional banks as shares fell by up to 75 percent when the market opened after Joe Biden claimed that “US banking is safe.”
The fears of contagion spread to major US banks, with Wells Fargo plummeting 7.5 percent, Bank of America falling 7.4 percent, Citigroup plunging 5.8 percent, and JP Morgan down 2.7 percent.
Trading circuit breakers were swiftly implemented to protect the market from rampant volatility.
Regional bank Western Alliance saw its stock price plunge by three-quarters as the opening bell sounded on Wall Street, while shares in First Republic dived 67 percent and PacWest by more than 35 percent.
Biden attempted to shore up trust just minutes before the market opened, telling reporters: “Americans can have confidence that the banking system is safe.”
The White House guaranteed that Silicon Valley Bank customers would be “made whole” after US authorities took control following the biggest collapse by a financial institution since 2008.
SVB’s swift downfall on Friday – the second-largest banking collapse in history – has ignited anxiety over contagion amid the Fed’s sharpest rate hike cycle since the early 1980s.
Biden defended his response to the financial meltdown, stating the bosses at SVB should be fired and suggested that relaxed regulations under Donald Trump were partly to blame.
He called for a “full accounting” of what led to the shutdown of SVB and “why those responsible can be held accountable.”
He warned that those who backed the failed bank “knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”
The failure of SVB tore into global markets overnight as Biden slept, with European bank shares suffering their biggest drop in more than a year, and bond markets seeing a gigantic repricing of rate hike bets.
The dollar slid too as Wall Street heavyweights such as Goldman Sachs predicted the Fed would no longer lift interest rates next week, capping the biggest three-day rally for short-dated Treasuries since 1987.
Europe’s bank index tanked 6 percent having shed 3.8 percent Friday. In Britain, banking stocks across the FTSE 100 and FTSE 250 have slumped nearly 4 percent despite HSBC’s takeover of the UK arm of SVB for £1 ($1.21).
The fears have been sparked over a $620 billion ticking-time bomb that US banks are sitting on after buying Treasuries and bonds while interest rates were low. Most banks and pension funds are affected.
Over the last three decades, First Republic’s customers have boomed from a small operation to the lender of choice for wealthy clients, including Facebook founder Zuckerberg.
Customers are enticed by lavish perks, including cocktail parties at its swanky branches from Manhattan to Palm Beach.
Many clients are on a first-name basis with their branch manager and cite personal attention as their reason for banking with the lender.
Despite the cash infusion, investment bank Raymond James double downgraded its stock to “market perform” from “strong buy,” highlighting the risk of deposit outflows that First Republic faces from panicked large depositors after the bank run at SVB.
SVB’s failure is the largest since Washington Mutual went bust in 2008, a hallmark event that triggered a financial crisis that hobbled the economy for years.
The 2008 crash prompted tougher rules in the US and beyond.
Since then, regulators have imposed more stringent capital requirements for US banks aimed at ensuring individual bank collapses will not harm the wider financial system and economy.
Over the weekend, the Fed and US Treasury announced a range of measures to stabilize the banking system and said customers at SVB would have access to their deposits on Monday.