After a busy week with several US banks going bankrupt, investors still seem unconvinced of a positive outcome. Bank stocks in particular are still under pressure today, despite major interventions in the US and Europe.
To prevent another bank falling after Silicon Valley Bank and Signature Bank, America’s First Republic Bank (FRB) received more than $30 billion in capital injections last night. Previously, Credit Suisse had taken a large loan from the Swiss central bank to stay afloat. Did this prevent a domino effect or are investors’ concerns justified?
“Investors are happy that there is a direct and definitive answer,” says Jim Tehupuring, a stockbroker at 1Vermogensbeheer. “But the question is whether their confidence is permanently restored with this financial support.” On Friday, it was clear that the tension in the financial markets had somehow returned.
“Fear of the bank is not over yet”
The money needed to support the FRB comes from eleven other US banks. The campaign was initiated by the US government and the country’s central bank, Bloomberg news agency reported yesterday. The amount must remain in First Republic’s account for at least three months.
“If you want to invest $30 billion to show your competitor that you trust that bank, that’s a clear sign. “Because if it goes bankrupt, you lose it,” says analyst Corné Van Zeijl of asset manager Actiam. The fact that peers take this risk should therefore increase the consumer’s confidence in the bank.
FRB’s recovery plans appeared to be working after they were announced on Thursday. First Republic’s share price rose and closed positive. Today, however, the situation remains uncertain: First Republic’s share price fell by nearly a quarter when the stock market opened, and Credit Suisse lost almost 10 percent.
Major US stock markets are also a bit red. “Equities show that bank fear is not over yet,” says analyst Corné van Zeijl.
feelings
Tehupuring says that no matter how much additional support a bank gets, in the end it all revolves around customer trust. “This signal is more important than money or banks’ capital ratios. That 30 billion may not even be necessary, but it can increase confidence.”
And this is very important: A bank goes bankrupt if customers no longer dare to deposit their money in a bank and withdraw their money in bulk – a so-called bank run. Most of the account holders’ money is invested in things that the bank cannot repay quickly, such as loans and mortgages.
That’s why it’s hard to predict when the banking world will calm down, Van Zeijl says: “All bank runs are fueled by emotions, and you never know when they’ll come up.”
Source: NOS
Roy Brown is a renowned economist and author at The Nation View. He has a deep understanding of the global economy and its intricacies. He writes about a wide range of economic topics, including monetary policy, fiscal policy, international trade, and labor markets.
