The fears of a US Banking Crisis were reignited Tuesday, after the shares of two regional lenders plunged following First Republic’s failure.
PacWest, a Californian bank, suspended trading after its stock fell as much as 39%, while Arizona’s Western Alliance dropped by more than 55%.
The sharp drops in prices stoked fears of a crisis in confidence within the US banking system, and prompted calls for the Federal Reserve not to raise interest rates.
On Tuesday, 10 Congressmen wrote to Jerome Powell (chairman of the US central banks) to urge him to stop interest rate increases at the Fed meeting later this week in order to “avoid a recession which destroys jobs and crushes the small businesses”
HSBC chief executive Noel Quinn downplayed concerns about the global banking system’s health after JP Morgan had to step in and rescue California’s First Republic – the third US lender that has failed in the last two months.
He said: “We are pleased that First Republic was resolved at the weekend, so that this situation has been solved.
“We don’t believe that a global financial crisis is imminent.” “We do not believe there is a global banking crisis on the horizon.”
PacWest and Western Alliance were the focus of intense attention after regulators sold Wall Street giant JP Morgan’s beleaguered regional Bank First Republic. It was second-largest banking failure in US after Washington Mutual in 2008
PacWest and Western Alliance were both scrutinized due to their similarity with Silicon Valley Bank (SVB), which collapsed in march, and First Republic. All three have a large proportion of uninsured depositors.
PacWest, one of the smaller regional banks in the country, has struggled since the collapse of SVB. The Beverly Hills bank’s deposits fell by over $5bn, to $28,2bn (£22.6bn), during the first quarter of this year.
Last week, it was reported that deposits had stabilized following a wave of withdrawals.
HSBC announced a tripled profit due to the rising interest rates, as Mr Quinn reassured the world about the healthiness of the banking system.
The FTSE-100 bank reported a pre-tax profit of $12.9bn in the first three month of the year. This is up from $4.1bn at the same time last year.
HSBC’s net interest margin – the difference between what it pays to savers and charges to borrowers – jumped 0.5 points, reaching 1.69pc.
Retail banks have been accused by MPs of taking advantage of the soaring rates of interest to boost their profits, at the expense of consumers.
Harriett BALDER, the chairman of Treasury Committee, stated that banks “rely on inertia from their most loyal clients to drive higher profit.”
She stated: “As the Committee, we’ll continue to pay attention to the results of banks and will continue pressing for more action in this field.”
Last month, City watchdogs challenged bank chiefs who were miserly in their increases to savings rates and warned them of “onerous intervention” if they failed to pass rate increases on to savers.
Some instant access saving accounts pay as low as 0.7pc in interest. HSBC offers a basic easy access account that pays 1.3pc interest annually.
HSBC booked a provisional $1.5bn profit from its government-engineered rescue of SVB UK, the bank said on Tuesday. Mr Quinn stated that the bank intends to expand its SVB unit into Hong Kong, other parts of Asia, and possibly Israel. He also said that the bank had no “nasty surprises” in the bank it purchased for PS1.
Mr Quinn, along with his colleagues, are preparing for a confrontation with activist shareholders during the annual meeting of the bank in Birmingham this Friday. The lender’s largest shareholder has called on the lender to separate its Asian operations from its other operations.