First Republic Stock Plunges After Bank Rescue Plan, Dividend Suspension
March 18, 2023 No Comments
A $30 billion deposit influx from biggest U.S. banks fails to calm jittery investors
A $30 billion deposit influx from biggest U.S. banks fails to calm jittery investors
This crisis may not be as bad as 2007-08 but Biden’s bank bailout shows what a risk to the global system it already poses
European financial regulators have ripped their American counterparts’ decision to bail out Silicon Valley Bank (SVB) in the wake of its collapse, claiming they violated their own standards in doing so, according to the Financial Times. They are particularly frustrated at the decision to cover all deposits when they were only supposed to guarantee up to $250,000.
Large U.S. banks injected the funds into San Francisco-based bank on Thursday, swooping in to rescue the lender caught up in a widening crisis triggered by the collapse of two other mid-size U.S. lenders over the past week.
We are in a looming financial crisis, even if we don’t want to see it.
Silicon Valley Bank was, according to Moody’s, worthy of an investment-grade rating as of March 8. S&P Global Ratings similarly held a high opinion of SVB. Two days later, SVB was shut down. Immediately, Moody’s dropped SVB into junk territory. So did S&P Global Ratings.
California governor Gavin Newsom (D.) helped persuade President Joe Biden to bail out Silicon Valley Bank and was one of the first politicians to praise the move. His assistance comes years after the failed bank began lobbying California’s government and donating to Newsom’s wife.
In financial markets, the tide has been going out for a while and is still receding. To paraphrase Warren Buffett, we are starting to get a good look at who has been swimming naked. It isn’t pretty.
His latest bailout is a solution for him now and a problem for us later.
Notice that the giant rout in bank stocks on Monday came after, not before, Washington stepped in with funding help and an implicit universal deposit guarantee in the wake of the federal seizure of California’s struggling Silicon Valley Bank and New York’s Signature Bank.
President Biden tried to reassure Americans early Monday morning that the banking system is safe and not to worry about the failures of Silicon Valley (SVB) and Signature banks. Markets didn’t believe him because bank stocks took another plunge, with some down 60% or more.
Shockwaves from the collapse of Silicon Valley Bank further pounded global bank stocks on Tuesday as assurances from President Joe Biden and other policymakers did little to calm markets and prompted a rethink on the interest rate outlook.
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