In pre-market trading this morning, bank shares plummeted by up to 74 percent, despite President Biden’s efforts to calm investors after the collapse of Silicon Valley Bank.
First Republic Bank’s shares dropped as low as $21.50 from a high of $81.76, raising concerns of a banking rout when Wall Street opens trading at 9.30am.
Biden is due to speak at 8am to try to shore up trust in the sector after the White House guaranteed it would make SVB customers ‘whole,’ and ‘no losses will be borne by the taxpayer.’
SVB’s swift downfall on Friday, the second-largest banking collapse in history, has ignited anxiety over a contagion in the banking sector amid the Fed’s sharpest rate hike cycle since the early 1980s.
Investors are smelling blood in the water this morning, with multiple US banks suffering in early trading, including PacWest Bancorp’s stock tumbling 41 percent, Western Alliance Bancorp’s shares sliding 33 percent, and Bank of America’s stock falling 4 percent.
Europe’s bank shares also suffered their biggest fall in over a year, and bond markets saw a gigantic repricing of rate hike bets as global efforts to limit the fallout from SVB’s crash began in earnest as America slept.
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.
Over the weekend, the Fed and US Treasury announced a range of measures to stabilize the banking system, and said depositors at SVB would have access to their deposits on Monday.
The Fed also said it would make additional funding available through a new ‘Bank Term Funding Program,’ which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.
Authorities have also taken over New York-based Signature Bank, the second bank failure in a matter of days. Analysts noted that the Fed would accept collateral at par rather than marking to market, allowing banks to borrow funds without having to sell assets at a loss.
In currency markets, the dollar index, which measures the greenback’s value against a basket of currencies, fell 0.3 percent.
The pound and euro both rose around 0.2 percent, while the safe-have Japanese yen surged more than 1 percent.
Gold climbed almost 1 percent as well to $1,885 an ounce, having jumped 2 percent on Friday. Oil prices lost over 1.5 percent though with Brent back at 81.48 a barrel and U.S. crude at $75.28 per barrel.