The global banking sector left behind a tough week

The global banking sector left behind a difficult week due to bank bankruptcies and liquidity problems.

Concerns about the banking sector, which started in the USA and spread to Europe, increased the volatility in the markets and caused a general decline in banking stocks.

The concerns about the banking sector, which started with the termination of the operations of Silvergate Capital in the USA, the world’s largest economy, turned into a crisis with the bankruptcy of SVB and Signature Bank and the problems experienced by First Republic Bank.

The bankruptcy of the Bank of Silicon Valley, the 16th largest bank in the USA, became one of the largest bankruptcies since the 2008 global financial crisis, while the bank’s collapse within 48 hours forced banking regulators to take action.

The panic that spread to Europe after Credit Suisse, Switzerland’s 167-year-old bank, got into trouble, increased the fear of a global banking crisis.

The developments in the global banking sector last week are as follows:

8 MARCH

Silvergate Capital, which mostly deals with cryptocurrency transactions, has announced that it plans to cease operations. The shares of the bank, which was negatively affected by the collapse of the cryptocurrency exchange FTX, fell by more than 40 percent after the said announcement.

SVB announced that it closed its $21 billion bond position with a loss of approximately $1.8 billion and will raise more than $2 billion in capital.

MARCH 9

After the SVB closed its bond position at a loss and announced that it would raise capital, the bank’s share price dropped more than 60 percent. Shares of major US banks JPMorgan Chase, Bank of America, Wells Fargo and Citigroup also fell, as the sharp decline in SVB shares raised concerns about the banking sector.

As the panic over the SVB spread rapidly on social media, some venture capital firms began to withdraw their money from the SVB. It was reported that $42 billion was withdrawn from the bank in just one day.

10 MARCH

SVB’s transactions were suspended as losses continued in the futures market after some venture capital investors advised companies to withdraw their money from the bank.

While the US media reported that she was in talks for the sale of SVB, Treasury Secretary Janet Yellen said that in the session on the 2024 fiscal year budget proposal held in the House of Representatives, she carefully followed the developments regarding some banks after the losses suffered by the SVB.

The US Federal Deposit Insurance Corporation (FDIC) stated that a trustee was appointed to Silicon Valley Bank, which caused a decline in the markets, and reported that SVB was the first FDIC insured institution to go bankrupt this year.

In the statement made by the FDIC, it was stated that as of December 31, 2022, SVB’s total assets were approximately $209 billion and total deposits were approximately $175.4 billion. All insured depositors will have full access to their deposits by March 13 at the latest, the statement said.

US Treasury Secretary Yellen met with officials from the US Federal Reserve (Fed), FDIC and the Office of the Control of Money (OCC) to discuss developments around the SVB.

International credit rating agency Moody’s reported that it downgraded the bankrupt SVB’s credit rating.

12 MARCH

US Treasury Secretary Janet Yellen, in an interview with CBS television, stated that the SVB will not be bailed out, but that they are working to protect the depositors.

Following SVB, a trustee was appointed by the FDIC to New York-based Signature Bank. Signature Bank has approximately $110.4 billion in assets and approximately $88.6 billion in deposits as of December 31, 2022.

The U.S. Treasury Department, the Fed and the FDIC announced the decisions taken on the protection of deposits following bank failures, and it was reported that depositors will have access to all of their money from Monday.

The Fed launched the Bank Term Financing Program (BTFP) to facilitate lending to eligible US depository institutions.

13 MARCH

The Bank of England (BoE) announced that the parties have reached an agreement on the acquisition of SVB’s subsidiary in England by HSBC.

US President Joe Biden has said he will ask Congress and banking regulators to strengthen rules for banks to reduce the likelihood of bank failures happening again.

SVB Financial Group, the parent company of the bankrupt SVB, and two of its top executives have been sued for fraud by the shareholders.

The Fed announced that it will investigate the oversight of the bankrupt SVB.

After the bankruptcy of the two banks, many banks and financial services stocks suffered losses, while First Republic shares fell 62 percent.

Moody’s has examined six U.S. banks because of their “extremely volatile funding conditions” and their exposure to the risk of uninsured deposit outflows. The banks in question were First Republic Bank, Western Alliance Bank, Zions Bancorp, Intrust Financial, Comerica and UMB Financial Corp.

15 MARCH

International credit rating agency Standard & Poor’s (S&P) and Fitch Ratings downgraded California-based First Republic Bank, citing increased deposit outflow risk and profitability pressures.

The Canadian Financial Institutions Supervisory Office has taken additional measures to protect creditors of the Canadian branch of the SVB, taking permanent control of the bank’s assets.

After the Saudi National Bank, the biggest partner of Switzerland-based Credit Suisse bank, announced that they would not increase their capital, the decrease in the stock price of the bank reached 25 percent, while selling pressure spread throughout the market.

Shares of other European banks including France-based Societe Generale, BNP Paribas and Germany-based Deutsche Bank were also adversely affected.

The Swiss Financial Markets Regulatory Authority (FINMA) and the Swiss National Bank (SNB) announced that they will provide liquidity to Credit Suisse if necessary.

16 MARCH

Credit Suisse announced that it will borrow close to 50 billion Swiss francs (approximately $54 billion) from the SNB to strengthen its liquidity.

Credit Suisse shares started the day with an increase of nearly 40 percent with the effect of the Swiss National Bank’s liquidity support.

Eleven major banks, including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo, announced that they will transfer a total of $30 billion in deposits to the US First Republic Bank.

In the joint statement of the US Treasury Department, the Fed, the FDIC and the OCC, it was stated that the support of the big banks to the First Republic Bank shows the resilience of the banking system.

17 MARCH

SVB’s parent company, SVB Financial Group, has filed for bankruptcy.

US President Biden has urged Congress to take action to impose tougher penalties on bank executives who have caused their institutions to fail.