US banking system is safe, declares Biden as shares tumble on Wall Street and two lenders collapse amid fears of contagion after SVB collapse
President Biden yesterday promised Americans ‘the banking system is safe’ – as fears of contagion after the collapse of Silicon Valley Bank prompted another Wall Street bloodbath.
Shares in a number of America’s regional lenders suffered eye-watering sell-offs even after authorities put in place a backstop guaranteeing all of the nation’s deposits.
In Britain, HSBC’s emergency rescue of SVB’s British arm was welcomed by the tech firms who had feared collapse if they could not access their funds by yesterday morning. The lender – Europe’s largest – will reportedly inject £2billion into the business.
Pledge: US president Joe Biden said those responsible for banking crisis must be held to account and said managers of failed lenders taken over by federal authorities should be fired
But banking shares in London and across Europe slumped amid nervousness about the wider health of the sector – dragging the FTSE 100 2.6 per cent lower, wiping more than £50billion off the value of its constituent companies.
The turmoil came after government officials and central bankers on both sides of the Atlantic scrambled over the weekend to contain the immediate fallout from California-based SVB’s collapse on Friday.
It was the biggest banking failure since 2008’s banking crisis. On Sunday another lender, New York’s Signature Bank, also collapsed.
In a televised address, the US president said: ‘Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.’
Biden said those responsible for the crisis must be held to account and said the managers of failed lenders taken over by federal authorities should be fired.
He pressed for tougher regulation for the sector and pledged that taxpayers would not bear the losses of any failures.
Biden also made clear that investors in the bank ‘will not be protected’. He added: ‘They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.’
Wall Street giants slid, with Citi off 7.5 per cent and Wells Fargo down 7.1 per cent.
But it was the regional banks which saw the biggest falls, with San Francisco-based First Republic losing as much as 78 per cent, as trading was repeatedly halted because of the volatility – before partly recovering.
That was despite the bank’s boss saying it had been able to meet withdrawal demands, after being helped by additional funding from JP Morgan.
Angst: Customers queue to withdraw funds outside a Silicon Valley Bank in Massachusetts yesterday
While not having the scale of the bigger New York lenders, it still has a significant presence, with assets of £174billion and deposits of £145billion at the end of last year.
In London, shares in Virgin Money – a relatively small lender – fell 9 per cent, or 14.75p, to 149.75p, Barclays slid 6.3 per cent, or 9.94p, to 147.48p, Lloyds lost 5.1 per cent, or 2.55p, to 47.23p, HSBC fell 4.1 per cent, or 24.5p, to 568.1p and Natwest dropped 4.8 per cent, or 13.8p, to 272.2p. In Europe, Credit Suisse – which recently posted a record loss – dived 3 per cent and Italy’s Unicredit fell 9 per cent.
Gary Greenwood, banking analyst at Shore Capital, said while it was a specific set of problems that had led to SVB’s collapse, there was a ‘general nervousness in the market’ – even if no specific concerns were being highlighted.
Greenwood said there might be ‘some depositors, at the margin, that decide to move their money from smaller banks to larger banks – that’s more likely to be corporate deposits’. A Bank of England spokesman said: ‘The wider UK banking system remains safe, sound and well capitalised.’
HSBC’s rescue of SVB’s UK arm – which collapsed on Friday – averted a situation in which parts of Britain’s tech sector could have been ‘wiped out’, according to Chancellor Jeremy Hunt. The Bank of London, which was among firms involved in early-stage talks to rescue SVB UK, criticised the sale to HSBC as a ‘missed opportunity’.
‘It cannot be right that, once again, the heritage banks that have provided a poor service to UK entrepreneurs over many years benefit from their already dominant position,’ it said.
How the crisis spread
Wednesday March 9
Silicon Valley Bank announces £1.8billion fundraising after heavy bond losses.
Thursday March 10
Shares fall 60 per cent prompting a wider plunge for US banks. Bank run at SVB as start-ups advised by venture capital backers to pull money out.
Friday March 11
US regulators close bank. UK subsidiary sees billions withdrawn. Bank of England announces insolvency process.
Saturday March 12
Jeremy Hunt, Rishi Sunak and Andrew Bailey discuss a solution. Officials assess impact on tech sector.
Sunday March 13
Hunt pledges cash needs of UK customers will be met. Potential buyers emerge. US regulators announce ‘backstop’ to protect all banking deposits. Authorities close New York’s Signature Bank.
HSBC buys SVB UK for £1. All deposits safe. Global banking shares fall further