US banking system safe, Biden says as stocks tumble on Wall Street and two lenders plummet amid contagion fears after SVB collapse
President Biden yesterday promised Americans that ‘the banking system is safe’ – as fears of contagion after the collapse of Silicon Valley Bank sparked another bloodbath on Wall Street.
Shares of a number of U.S. regional lenders suffered blistering selloffs even after authorities put in place a backstop guaranteeing all deposits in the country.
In Britain, HSBC’s emergency bailout of the UK branch of SVB was welcomed by tech companies who feared they would collapse if they were unable to access their funds yesterday morning. The lender – Europe’s largest – is said to inject £2billion into the business.
Commitment: US President Joe Biden has said those responsible for the banking crisis must be held accountable and managers of failing lenders taken over by federal authorities should be fired
But banking shares in London and across Europe slumped amid jitters over the broader health of the sector – dragging the FTSE 100 2.6% lower, wiping more than £50bn off the value of its constituent companies.
The turmoil came after government officials and central bankers on both sides of the Atlantic scrambled over the weekend to contain the immediate fallout from the collapse of California-based SVB on Friday.
It is the biggest bank failure since the 2008 banking crisis. Another lender, New York’s Signature Bank, also collapsed on Sunday.
In a televised address, the US President said: “Americans can have confidence in the security of the banking system. Your deposits will be there when you need them.
Biden said those responsible for the crisis must be held to account and said managers of failing lenders taken over by federal authorities should be fired.
He called for stricter regulation for the sector and promised that taxpayers would not bear the losses from failures.
Biden also clarified that investors in the bank “will not be protected.” He added: “They knowingly took a risk and when the risk didn’t pay off, investors lose their money.” This is how capitalism works.
The Wall Street giants slipped, with Citi down 7.5% and Wells Fargo down 7.1%.
But it was regional banks that saw the biggest falls, with the San Francisco-based First Republic losing up to 78% as trading halted several times due to volatility – before partly recovering.
It was good that the bank’s boss said it had been able to accommodate withdrawal requests, having been helped by additional funding from JP Morgan.
Angst: Customers line up to withdraw funds outside a Silicon Valley bank in Massachusetts yesterday
Although it does not have the size of New York’s biggest lenders, it still has a significant presence, with assets of £174bn and deposits of £145bn at the end of the year. last.
In London, shares of Virgin Money – a relatively small lender – fell 9%, or 14.75p, to 149.75p, Barclays slipped 6.3%, or 9.94p, to 147.48p, Lloyds fell 5.1%, or 2.55p, to 47.23p, HSBC fell 4.1%, or 24.5p, to 568.1p and Natwest fell 4.8%, or 13.8p, at 272.2p. In Europe, Credit Suisse – which recently recorded a record loss – plunged 3% and Italy’s Unicredit 9%.
Gary Greenwood, banking analyst at Shore Capital, said while it was a specific set of issues that led to SVB’s collapse, there was “general jitters in the market” – even though no particular concern was highlighted.
Greenwood said there could be “some depositors, at the fringe, who decide to move their money from the smaller banks to the larger banks – more likely it’s corporate deposits.” A Bank of England spokesman said: “The wider UK banking system remains safe, sound and well capitalised.”
HSBC’s bailout of the UK branch of SVB – which collapsed on Friday – averted a situation in which parts of Britain’s tech sector could have been “wiped out”, according to Chancellor Jeremy Hunt. The Bank of London, which was among firms involved in preliminary talks to save SVB UK, criticized the sale to HSBC as a “missed opportunity”.
“It is not fair that once again the heritage banks which have provided a poor service to UK entrepreneurs for many years are benefiting from their already dominant position,” he said.
