Trading temporarily HALTED in dozens of banks after shares fell by up to 75% when market opened at 9.30am – moments after Biden said ‘US banking is safe’ – as contagion spreads to heavyweights Wells Fargo, Bank of America and JP Morgan
- Western Alliance Bancorp’s stock price dropped by three quarters, First Republic Bank dived 67% and PacWest Bancorp plunged more than 35%
- Major US banks were also hit: Wells Fargo down 7.5 percent, Bank of America 7.4 percent, Citigroup 5.8 percent and JP Morgan 2.7 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’
Trading was temporarily halted in dozens of regional banks this morning as shares fell by up to 75 percent when the market opened after Joe Biden claimed ‘US banking is safe.’
Major US banks were also hit as contagion fears spread through the sector 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.
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. Trading circuit breakers were swiftly implemented to protect the market from rampant volatility.
Biden addressed the nation from the Roosevelt Room in the White House as he attempted to avert a broader catastrophe from sweeping the financial system following the collapse of Silicon Valley Bank on Friday.
‘Americans can have confidence that the banking system is safe,’ he said just minutes before the market opened.
The declines came despite US authorities on Sunday guaranteeing customers of SVB their money would be safe and ready to withdraw Monday following a run on the bank Friday that triggered the second-largest collapse in history, the worst since 2008.
The Fed also announced a new Bank Term Funding Program that will offer loans for up to a year to banks in return for premium collateral like Treasuries.
SVB’s swift downfall has ignited anxiety over a contagion amid the Fed’s sharpest rate hike cycle since the early 1980s.
Investors piled into the refuge of US government bonds sending the two-year Treasury yield tumbling to 4.089 percent. The yield has fallen by 100 basis, a full percentage point, since Wednesday marking the largest three-day decline since the Black Monday crash of 1987.
Biden defended his response to the financial meltdown in less than four minutes of remarks, stating the bosses at SVB should be fired and suggested that relaxed regulations under Donald Trump were partly to blame.
‘If the bank is taken over by FDIC, the people running the bank should not work there anymore,’ he said.
He called for a ‘full accounting’ of what led to the shutdown of SVB and ‘why those responsible can be held accountable.’
‘In my administration, no one is above the law. And finally, I must reduce the risk of this happening again,’ the president said.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.
The yield on the 10-year U.S. Treasury note fell to 3.507 percent, from 3.694 percent Friday as Wall Street’s so-called ‘fear gauge’ spiked, with the the Cboe Volatility Index (VIX) rising to a five-month high at 27.84.
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).
‘We are seeing a classic flight to safety,’ said Tom Caddick managing director at Nedgroup Investments. ‘Higher interest rates and a slowing economy was always going to bite.’
Michael Burry, the investor immortalized in The Big Short, was full of doom yesterday as he tweeted: ‘2000, 2008, 2023, it is always the same. People full of hubris and greed take stupid risks, and fail. Money is printed. Because it works so well.’
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.
When interest rates rise, newly issued bonds start paying higher rates to investors, which makes the older bonds with lower rates less attractive and less valuable. Most banks and pension funds are affected.