Banks turmoil, four banks went under. Fears remain for the others. While concerns encircle Deutsche bank in Europe and First Republic Bank.
Banks turmoil is spreading in Europe
The weekend is expected to be pivotal for the banking industry for the third straight week. Due to investors’ concern that Silicon Valley Bank.
The bank was forced to close on March 10, making it the second-largest bank collapse in US history following Washington Mutual’s failure during the financial crisis of 2008. Silvergate Bank – had shut down 2 days previously. And to everyone’s astonishment. On March 12, regulators announced the closure of New York’s Signature Bank.
Europe was also affected by the crisis, which compelled the Swiss government to order UBS to purchase its neighbor Credit Suisse instantly for the sum of $3.24 billion. The investors viewed Credit Suisse, a bank that is currently rocked by scandals. As the weak link in the financial crisis.
Additionally, the Fed ( Federal Reserve ) established a new safety net to provide urgent loans to institutions in need. But despite all of this, many investors still worry about the spread.
Banks are not getting any relief
The issue this time around, unlike the financial catastrophe of 2008, is not the caliber of the assets held by the banks. The present confidence crisis was brought on by Silicon Valley Bank’s interest rate risk. Without adequate protection against the risks involved.
When interest rates were close to zero, the Santa Clara, California, bank purchased Treasury bonds and mortgage-backed assets. There was no default danger because the federal government was the borrower.
The investors think that numerous banks, and especially U.S. regional banks, have placed wagers similar to those made by SVB. They ponder whether or not these banks have sufficient cash on hand. To cover the losses in the event that any of their clients attempted to take out funds.
The spotlight is on First Republic Bank. Three main credit-rating agencies cut the bank’s grade.
The strength of the bank’s franchise has been weakened, according to Moody’s Investors Service. Despite the bank’s announcement that daily account outflows have significantly decreased. The agency estimates that 68% of Q4 2022 deposits were not insured.
Since SVB’s problems started, First Republic Bank shares have decreased by 89 percent.
