Panic in financial global market as two top US banks collapse

More than $100 billion has been wiped off in banks’ value in the United States (U.S.), following the collapse of Silicon Valley Bank.

The collapse of the bank has been sending shockwaves throughout Wall St.

Trading was temporarily halted in dozens of regional banks yesterday as shares fell by up to 75 per cent, despite Joe Biden’s assurances that ‘U.S. banking is safe.’

Major U.S. banks were also affected by the crash, spreading fear throughout the market, with Wells Fargo plummeting 7.5 per cent, Bank of America falling 7.4 per cent, Citigroup plunging 5.8 per cent and JP Morgan down 2.7 per cent.

Last Friday, federal regulators took over the Santa Clara, California-based institution after a series of massive withdrawals over the course of 48 hours creating a bank run.

As part of the fallout, another financial institution in New York, Signature Bank, was shut down two days later by authorities who feared keeping the bank open could threaten the stability of the financial system.

But, “Dr. Doom” economist Nouriel Roubini warned that the recent collapse of Silicon Valley Bank (SVB) poses a risk of “global contagion.”

Roubini was a senior adviser to Treasury Department Undersecretary for International Affairs, Timothy Geithner, during the Obama administration.

He earned his nickname for predicting the 2008 financial crisis.

“There is, at least, one financial institution in Europe that has been historically under-capitalised, have had problems of recapitalising, might have some bad assets, some exposures to long-term securities and unrealised losses,” Roubini told Newsweek on Monday.

“If something were to happen with this institution…that will be much more systemically important — we’re speaking about institutions with trillions of dollars of assets, not $400 billion like SVB,” he said.

The recent chaos surrounding SVB’s closure has not been limited to the U.S., like Roubini noted.

Early in the week, European markets closed much lower with bank stocks falling 5.65 percent—the biggest slide in more than a year. The most recent worst day had been on March 4, 2022, shortly after Russia invaded Ukraine, when bank stocks fell 6.66 per cent.

On Monday, Europe’s Stoxx 600 index closed down 2.34 percent, Germany’s DAX was down 3 percent, France’s CAC 40 fell 2.9 percent and the UK’s FTSE 100 declined 2.6 percent. Shares of Switzerland’s Credit Suisse hit a record low, tumbling more than 12 percent.

“That’s the natural lag of the global contagion. That’s why even in Europe, stocks are way down, even though they had nothing to do with this particular (collapse),” Roubini said.

U.S. President Joe Biden insisted that the system was safe after the second and third largest bank failures in the nation’s history happened within 48 hours.

In response to the crisis, regulators guaranteed all deposits at the two banks and created a programme that effectively threw a lifeline to other banks to shield them from a run on deposits.

“Your deposits will be there when you need them,’ Biden told the public, seeking to project calm. He also said the banking executives responsible for the failures would be held accountable.

Despite the message from the White House, investors broadly dumped shares in bank stocks.

Shares of First Republic Bank closed down more than 60 per cent even after the bank said it was taking emergency funding from the Federal Reserve and additional money from JP Morgan Chase.

Shares in KeyCorp and Comerica plunged by nearly a third. The stock of well-known franchises such as Charles Schwab, Fifth Third Bank, Truist and Huntington Bancshares all dropped by double digits.

In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000 (£205,000)..