Bank sell-off accelerates despite Biden reassurance that system ‘is safe’

Bank stocks have plunged sharply across the US and Europe again, despite the US president’s assurance that the system “is safe” in the wake of the failures of Silicon Valley Bank and Signature Bank.

News that the US government had effectively taken control of Silicon Valley Bank (SVB), and that its UK arm had been sold to HSBC, failed to stem sector-wide worries when the markets opened for business on Monday.

They focus on the extent to which certain, smaller, lenders have been damaged by US central bank moves against inflation through aggressive interest rate hikes.

Such moves have soured their bond holdings in the process because most were bought at rock bottom prices during the long era of cheap credit.

Short-dated US government bond yields rallied further as speculation grew that the Fed would have to support the banking sector by cancelling its next, widely expected, interest rate hike next week.

Banking shares were further pressured as yields (the premium demanded to hold US Treasuries) rose but the dollar fell sharply.

The FTSE 100 closed at 7,548 – down by 2.6% or 200 points – building on its losses last Friday when the SVB crisis was gathering pace.

Standard Chartered and Barclays led the fallers, down 6.9% and 6.4% respectively.

There was no benefit to be seen in HSBC’s decision to take on SVB UK for the token sum of £1.

Its London-listed shares ended the day 4% lower.

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French finance minister Bruno Le Maire called on investors to “calm down” after the pan-European STOXX banking index plunged by more than 5% following Friday’s 4% decline.

In the US, some smaller regional lenders saw their share prices fall by up to 70% at the open.

Big names, such as Wells Fargo, saw significant falls.

Its stock plunged by 7.5%.

Citigroup was down 6% and Bank of America down 7%.

Senor chairman at Goldman Sachs, Lloyd Blankfein, appeared to join calls for a measure of calm.

He tweeted: “A few banks may have issues like SVB, but only a few.

“Govt actions removed reasons for bank runs. Biggest banks have much tougher regulation and stress testing. Anxiety and volatility high, but sharply lower interest rates, fed likely on hold, are strong positives for markets.

Susannah Streeter, head of money and markets, at Hargreaves Lansdown said Mr Biden’s intervention had clearly failed to bolster confidence.

“His admission that fresh regulations may be needed to stop further failures exposes weaknesses in the current system and now lawmakers will be asked to toughen the rules.

“So, even though the (SVB) collapse has centred on a small tech-focused corner of the financial system, the fall-out risks spreading.

“The era of cheap money has hurtled to an end and investors are waking up to some dramatic highly unintended consequences.”

She added on the SVB UK deal: “HSBC shareholders may have some concerns about the bank snapping up assets which have been under such a cloud of uncertainty, particularly the exposure to bonds, but HSBC says it expects a gain to arise from the acquisition.”

Customers of SVB UK number more than 3,000 and include businesses like Moonpig and Notonthehighstreet.

But a flurry of companies scrambled to distance themselves from SVB UK and reassure investors they were unaffected.

New York-based Signature Bank was also closed by US regulators on Sunday with more than $110bn (£90.8bn) in assets – the third-largest bank failure in US history.

Regional bank First Republic saw its shares tumble 66.9% after US markets opened, even after it said on Sunday its finances were strengthened with cash from the US central bank, Federal Reserve, and financial services company, JPMorgan Chase.