BackThe global banking turmoil explained; what's happening at SVB, Credit Suisse
Here are the top developments in the global banking sector in the past week.
PremiumIt all started on 10 March, 2023 after Startup-focused lender SVB Financial Group became the largest bank failure since the financial crisis, in a sudden collapse that roiled global markets and stranded billions of dollars belonging to companies and investors. SVB's chief Greg Becker in a video message told the employees, "he is working with banking regulators to find a partner for the bank." At present, the Federal Deposit Insurance Corporation (FDIC) has taken control of the lender. Amid the collapse of Silicon Valley Bank and its impact on the stock market over the week, Switzerland is facing pressure from at least one major government to intervene on Credit Suisse, citing the systemic nature of the bank.
Also Read: How SVB collapse offers opportunity for bottom fishing in India — explained
Here are the top developments in the global banking sector in the past week
Credit Suisse headed into a make-or-break weekend after some rivals grew cautious in their dealings with the struggling Swiss lender, and its regulators urged it to merge with UBS AG. At least four major banks, including Societe Generale and Deutsche Bank, are restricting new trades involving Credit Suisse or its securities, five sources told Reuters.
Credit Suisse shares jumped 9% in after-market trading after the Financial Times reported UBS was in discussions to take over all or parts of its Swiss rival as the boards of the two banks were set to meet separately over the weekend.
SVB Financial Group filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets, days after regulators took over its former unit Silicon Valley Bank.
Investor sentiment remained fragile on Friday despite massive rescue for the banking sector, leaving global equities under pressure while gold prices were poised for their largest one-week rally since March 2020. U.S. Treasury yields extended their slide, and oil prices dove to 15-month lows. Data showed March U.S. consumer sentiment fell for the first time in four months.
Credit Suisse's chief executive said on Friday the bank was working hard to stem customer outflows, although this could take time.
Credit Suisse saw more than $450 million in net outflows from its U.S. and European managed funds from Monday to Wednesday, Morningstar Direct said.
Moody's downgraded First Republic Bank's debt. Before the announcement, the bank's shares plunged nearly 33 percent, capping an 80% wipeout for the past 10 sessions, despite a rescue package with $30 billion in deposits injected by large US banks.
The US Federal Deposit Insurance Corp (FDIC) is considering steps to facilitate takeovers of Signature Bank and Silicon Valley Bank, a source told Reuters.
US President Joe Biden said on Friday that the banking crisis has calmed down after the recent collapse of Silicon Valley Bank and Signature Bank.
Biden has sought to reassure investors and depositors that the global banking system is safe as financial stocks have lost billions of dollars in value since the collapse of the two mid-size U.S. lenders over the past week. Biden, earlier this week, promised Americans that their deposits are safe.
European Central Bank supervisors, in an unscheduled meeting, saw no contagion to euro zone banks from the market turmoil that has engulfed Credit Suisse and some US lenders, a source told Reuters.
The ECB's on Thursday rate hike signalled strong confidence in the solidity of European banks, said French ECB policymaker Francois Villeroy de Galhau.
Financial authorities in Germany, Japan, Singapore, Australia, New Zealand and South Africa said their economies and financial systems were stable.
On 16 March, according to Jefferies, the fate of the European lender is of greater importance to the Indian banking sector than the collapse of SVB. Credit Suisse's bank has $200 bn in assets (12th among foreign banks), presence in derivatives market and funded 60% of assets from borrowings, of which 96% is up to 2 months. Still, its small for banking sector with 0.1% share of assets, the note highlighted. Top-5 foreign banks in India by assets are HSBC, Citibank (has now sold consumer business to Axis), Standard Chartered, Deutsche Bank and JP Morgan, Jefferies said.
Speaking on impact on India, Reserve Bank Governor Shaktikanta Das cautioned banks against any excessive mismatches in their asset-liabilities front, saying both are detrimental to financial stability, which is evident from the ongoing crisis in the US banking sector where two mid-sized banks went belly up last week.
The ongoing banking crisis in the US also speaks volumes that cryptocurrencies/ assets or the like can be a real danger to banks, whether directly or indirectly, said Das, who has been calling for a complete ban on such private digital money.
The Reserve Bank has taken the necessary steps in all these areas. The regulation and supervision of the financial sector and regulated entities have been suitably strengthened.
Minister of State for Electronics and IT Rajeev Chandrasekhar answered on the query about the Silicon Valley Bank crisis and the Indian government's role to mitigate the woes of startups. He said, “The Indian banking system is much more resilient and stronger in comparison to any other country’s banking system. Startups should therefore opt for Indian banks as their preferred banking partners."
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
