As withdrawals scare markets, shares of US banks plunge

Last night, the US financial markets continued to be shaken by the aftershocks of the collapse of Silicon Valley Bank.

State Street, America’s oldest bank, saw its shares fall after it revealed that customers had pulled out tens billions of dollars to start the year.

State Street customers withdrew 26 billion dollars from its investment products during the first quarter. The Boston-based firm’s shares fell up to 18% – the worst intraday drop since the early days in 2020 of the pandemic.

Charles Schwab, a stockbroker, said that $41bn was taken from his accounts in the first quarter of 2023. The company attributed the “uncertainty” in the regulatory environment to the collapse of SVB and the rescue of Credit Suisse Europe in March.

Schwab also showed that it had strengthened its finances through borrowing $45.6bn via the Federal Home Loan Bank System – an action sometimes seen as a sign financial stress.

Walt Bettinger, the chief executive of Walt Bettinger, played down recent instabilities, telling investors that “storms come and storms go.”

New York shares of the broker, down more than a quarter so far this season, first dropped before they climbed 3pc.

The news of the withdrawals caused concern at other US banks. BNY Mellon and Northern Trust both fell by 7pc.

The figures were so depressing that they fueled fears of further turmoil in the US financial system following the worst banking crisis ever since 2008.

Jane Fraser, the chief executive of Citigroup warned last week that the US would fall into recession in this year, while Jamie Dimon, the boss of JP Morgan, said “storm clouds” were gathering after the recent banking crisis.

In light of recent bank runs that have brought SVB to its knees, regulators around the globe are looking at tightening up the rules.

Chancellor Jeremy Hunt, and Bank of England Governor Andrew Bailey, are both evaluating whether or not to extend Government Guarantees on Bank Deposits in order to give more confidence to customers that their money will be safe.

In Britain, deposits up to PS85,000 can be covered. Mr Bailey, it is believed, would be willing to increase this ceiling in order to reduce the impact of social media driven bank runs.

Andrew Griffith, the economic secretary of the Treasury, and his officials “work with the Bank constantly to look at whether or not you have the right threshold and scope”.

John Vickers, an economist who worked on Britain’s financial regulations in the aftermath of the 2008 crash, believes that banks should be required to hold more money if the government increases its guarantees.

Bloomberg quoted him as saying: “If there is a greater state responsibility, then the trade-off is that the risk of bankruptcy must be lower. The only way to achieve this is by increasing the amount of common equity capital.”

The US bank stocks were in a state of instability at the beginning of a busy earnings week. The regional banks will be updating on their performance so far in the year. There are concerns about how severe SVB’s fallout may have been.

JP Morgan & Citigroup delivered better than expected figures last week, thanks in part to an influx deposits from customers who fled smaller institutions.

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