Bank shares plunging around the world after collapse of Silicon Valley Bank

There have been wild swings in the share prices of 20 regional banks in the US as turmoil spreads following the collapse of Silicon Valley Bank.

Banking shares were savaged in the US and Europe. Picture: iStock

At least 20 regional US banks have been gripped by turmoil as fears caused by the collapse of Silicon Valley Bank spread.

The stock prices of the regional banks plunged and they were placed in and out of trading halts.

Shares of First Republic Bank dropped by more than 65 per cent as trading started, leading the decline among banks as regional lenders face pressure.

Shares of other regional banks, including Western Alliance Bancorp and Zions Bancorporation, also plummeted.

The volatility proved to be an opportunity for some brave investors who were able to make staggering returns as the bank stocks swung wildly.

Around 20 minutes into trading, the Dow Jones Industrial Average, which slipped 0.7 per cent initially, picked up slightly.

But the broadbased S & P 500 remained 0.4 per cent down while the tech-heavy Nasdaq Composite Index lost 0.3 per cent.

Banks were also savaged in Europe. The benchmark Stoxx Europe 600 Banks index showed the top 42 EU and UK banks fell 5.6 per cent.

The drama was largely sparked after a bank run hit Silicon Valley Bank, leading to its collapse. About $42 billion was withdrawn from the bank on Thursday (US time) — a rate of $4.2 billion an hour.

Banking shares were savaged in the US and Europe. Picture: iStock

‘Confidence is eroding in the market’

The latest market turmoil came despite US finance authorities announcing a rescue plan on Sunday (US time) to ensure that depositors at the failed SVB will be able to fully retrieve their funds.

The Fed also signalled it would provide a backstop for the deposits of every bank — an extraordinary move to reassure skittish Americans.

“Confidence is eroding in the market. We’re seeing it particularly obviously in the regional banks,” said Quincy Krosby of LPL Financial, adding the same phenomenon could be seen in Europe.

While US authorities are trying to shore up confidence, “it doesn’t look as if it’s working,” she added.

Joe Biden moves to reassure Americans

US President Joe Biden on Monday reassured Americans that their banking system is secure in the wake of the collapse of SVB and said he wants tougher regulations to prevent future crises.

“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Mr Biden said in televised remarks from the White House after Silicon Valley Bank’s failure and the federal takeover of a second bank.

While the government is ensuring that SVB depositors get their money back, “no losses will be borne by the taxpayers,” Mr Biden said.

“The money will come from the fees that banks pay into the deposit insurance.”

US President Joe Biden speaks about the US banking system in the Roosevelt Room of the WHite House in Washington, DC on March 13, 2023. Picture: AFP.

Mr Biden challenged Congress to enact more stringent regulations, saying that “tough” safeguards brought in after the 2008 financial collapse had been undone under his Republican predecessor Donald Trump.

“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again,” Mr Biden said.

He made clear he expects the consequences to fall on the shoulders of those responsible and that the government’s rapid response over the weekend was not a bank bailout, as happened in 2008.

“We must get the full accounting of what happened and why, (so) those responsible can be held accountable,” he said.

Not only will taxpayers not be liable for covering the deposits, but “the management of these banks will be fired,” he said.

Once a bank is taken over by the government, “the people running the bank should not work there anymore.”

Mr Biden stressed that investors who bought into SVB were not getting bailed out. “They knowingly took a risk and when the risks didn’t pay off, investors lose their money. That’s how capitalism works,” he said.

The UK arm of collapsed US lender Silicon Valley Bank has been bought for £1 by HSBC following negotiations between the Government and Bank of England, in a deal that protects depositors’ money, says Treasury and Bank of England after weekend talks.

Announcing the deal, Noel Quinn, HSBC Group CEO said his bank would help SVB UK customers “grow in the UK and around the world.”

The Bank of England and HM Treasury confirmed that all depositors’ money with SVBUK is safe and secure as a result of this transaction, The Guardian reports.

Chancellor Jeremy Hunt said it was important to find a rescue deal for SVB UK that didn’t involve taxpayer funds.

“We were faced with a situation where we could have seen some of our most important companies, our most strategic companies, wiped out and that would have been extremely dangerous,” he said.

In Europe, Credit Suisse shares tumbled over 12 per cent and were trading below 2.20 Swiss francs at one point on Monday, down from Friday’s low of 2.41 francs.

The cost of insuring Credit Suisse’s bonds against default jumped as well.

The disastrous collapse of SVB is having unexpected consequences in Australia, with investors now betting strongly that the Reserve Bank of Australia will put further interest rates rises on hold.

– With AFP

Originally published as Bank shares plunging around the world after collapse of Silicon Valley Bank