European funds are afraid of the US banking crisis

SVB is the largest retail bank to collapse after the 2008 financial crisis.


European stocks fell on Monday as investors shrugged off global efforts to end the acute crisis stemming from the US banking sector.

Germany’s financial watchdog said the collapse of Silicon Valley Bank (SVB) posed no threat to financial stability, while France’s economy minister said there was no risk of contagion from US bank failures.

However, European shares were in the red in the morning as banking stocks fell sharply in Italy and Switzerland.

The Frankfurt and Paris stock exchanges fell by around three percent, while Milan fell by almost five percent over the same period, while Zurich fell by 1.7 percent.

London fell 2.3 percent after HSBC agreed to buy SVB’s UK unit for a nominal pound sterling ($1.2).

Uncertainty over the US Federal Reserve’s plans to raise interest rates sent the dollar lower and oil prices down.

“The Weakest Link”

“Apart from calming nerves, fears of contagion have been exacerbated by investors dumping risk assets in Europe,” City Index analyst Fiona Cincotta told AFP.

“Banks are leading the charge south, with investors targeting Spanish and Italian banks, which are seen as the weakest links as fears mount.”

After the collapse of SVB and the failure of Signature Bank, Asian stocks were mixed on US promises to crack down on troubled lenders.

US authorities have announced sweeping measures to ease concerns about the health of the banking system, but this has not been enough to quell market fears of a banking sector collapse.

Friday’s collapse of SVB, which specializes in venture capital financing, mostly in the technology sector, followed a huge run on deposits that left it unable to stand on its own.

This was in response to its announcement of an IPO and sale of securities to raise much-needed cash. Its shares plunged 60 percent in New York on Thursday, and trading was halted Friday morning before regulators shut it down.

The crisis shook the whole world, traders were once again on red alert about the failure of banks.

XTB analyst Walid Koudmani said: “Markets… are likely to be volatile throughout the week as a major domino effect could trigger widespread risk-on sentiment that could lead to further losses in stocks and risk assets.”

SVB is the largest retail bank to collapse after the 2008 financial crisis.

Its problems are similar to those of other banks, as interest rate hikes by the US Federal Reserve mean the securities it owns are being sold at significantly lower prices.

On Sunday, New York regulators said they had closed another lender, Signature Bank.

Fed plans

The crisis has forced the Fed, the Treasury Department and the Federal Deposit Insurance Corporation to pledge full protection to all depositors and provide relief to any lenders struggling to find cash while providing easier terms on short-term loans.

In a joint statement, they said SVB depositors would have access to “all their money” from Monday, March 13, and taxpayers would not have to foot the bill.

President Joe Biden vowed to hold those responsible for “this mess” “fully accountable” and said he would issue warnings Monday morning to keep the banking system stable.

The SVB crisis complicates the Fed’s plans to raise interest rates further as it struggles to rein in inflation, with investors now expecting it to raise them by just 25 basis points at its next meeting, rather than the 50 basis points suggested last week.

“The question is whether the Fed will even raise 25 basis points at the next meeting,” Alpha strategist Maurice Pomery told AFP.

“The problem for me is that many businesses are built on a model of zero interest, leverage and debt, those growth rates are no longer viable,” he warned.

(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)

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