Markets wavered and trading for several mid-size lenders was halted throughout Monday as President Joe Biden sought to reassure Americans on the strength of the country's banking system after the collapse of Silicon Valley Bank.
“Thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe, your deposits are safe,” Mr Biden said in televised remarks before trading opened.
Federal regulators at the weekend stepped in to enact emergency measures that would protect the failed banks' customers.
The Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation announced on Sunday that depositors at Silicon Valley Bank would have access to all of their funds beginning on Monday, even if they exceeded the FDIC's limit of $250,000. No losses will be borne by the taxpayer.
They also announced a similar risk exception for New York's Signature Bank, saying all depositors there would be “made whole”.
British regulators on Monday enabled the sale of UK subsidiary of Silicon Valley Bank to HSBC, Europe's largest bank, for £1 ($1.20).
“All customers who had deposits in these banks can rest assured they'll be protected and they'll have access to their money as of today,” Mr Biden said.
But he said investors would not be protected.
“They knowingly took a risk. And when the risk didn't pay off, investors lose their money,” Mr Biden said.
Those who had managed the banks will be fired, he said.
Mr Biden also pushed for stronger oversight on banks, blaming former president Donald Trump's administration for rolling back Obama-era regulations that were designed to prevent these types of collapses.
“I'm going to ask Congress and the banking regulators to strengthen the rules for banks, to make it less likely this kind of bank failure would happen again,” he said.
SVB, where many tech start-ups banked, collapsed last week when it sold about $22 billion worth of securities at a loss amid the Fed's aggressive interest rate increases.
The bank tried to raise funds to meet withdrawal needs, but that set off a panic as waves of customers began pulling out their money.
“SVB’s negligent investment strategies put tens of billions of dollars of risk on the shoulders of businesses and workers,” said Morris Pearl, chairman of Patriotic Millionaires, a progressive advocacy group that calls for higher taxes on the ultra-rich.
“They utterly failed to foresee the consequences of the current market and the Federal Reserve interest rate hikes.”
US regulators took over the bank on Friday.
The collapse is the largest bank failure since Washington Mutual in 2008.
First Republic Bank shares tank
First Republic Bank, based in San Francisco, led the slump in banking shares on Monday amid fears of wider fallout.
Shares in the bank plunged nearly 62 per cent by midafternoon to $31.21 after trading was halted several times.
The mid-cap lender holds $119.5 billion in uninsured deposits, Reuters reported.
The bank's executive chairman told CNBC it was able to meet withdrawal demands after receiving additional funds from JP Morgan Chase.
Other regional banks — Western Alliance (-46.94 per cent), KeyCorp (-27.38 per cent), Comerica (-27.65 per cent), Huntington Bancshares (-16.83 per cent) and PacWest Bancorp (-21.05 per cent) — also tumbled.
The KBW Bank Index, which tracks publicly traded banks and thrifts, dropped nearly 12 per cent on the day. It was its biggest one-day drop since the start of the Covid-19 pandemic.
A wild day on Wall Street
Wall Streets indexes were mixed after trading closed in what was a volatile day of trading.
Losses over fear of banking fallout were offset by hopes that the Fed would ease — or even pause — its interest-rate increases when it meets next week.
Before SVB's collapse, the Fed was expected to return to raising interest rates rapidly by announcing a 50-basis-point rise.
Traders now expect the Fed to impose a smaller interest rate increase at the end of its March 21-22 meeting, CME's FedWatch Tool showed.
The Dow Jones ended the day down 90 points, or 0.28 per cent, to 31,819. The S&P 500 fell 0.15 per cent while the Nasdaq gained 0.45 per cent.
Bank shares in Europe and Asia fell before the US market opened.
Monday's trading previews what could be a choppy week for markets, with the Consumer Price Index to be released on Tuesday, which will again weigh heavily on interest-rate expectations.
Reuters contributed to this report
