On Monday, Wall Street opened with a heavy sense of foreboding as the banking sector experienced a severe downturn. The collapse of SVB Financial Group (NASDAQ:SIVB) has triggered fears of contagion and has sent shockwaves throughout the financial world.
As of writing, the Dow Jones Industrial Average has risen by a mere 18 points, or 0.1%, while the S&P 500 has dropped by 0.4%, and the NASDAQ Composite is down by 0.2%. The collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY) has led regulators to take significant measures to boost confidence in the banking system. They have announced a series of measures, including offering a new line of credit and easing access to the Federal Reserve’s discount window to help banks reposition themselves after rapidly rising interest rates.
Depositors at Silicon Valley Bank and Signature will get their money back, whether insured or not. However, the uninsured deposits could have repercussions on the economy, especially on the world of venture capital and startups that SVB was targeting. Over the weekend, many small businesses with SVB deposits were worried about how to pay wages.
Despite these measures, broader concerns about banks remain uncertain. Shares of First Republic Bank (NYSE:FRC) tumbled 65% before being locked, hitting a new 52-week low. Over the weekend, First Republic said it added funds available through the Fed and JPMorgan. Similarly, shares of PacWest Bancorp (NASDAQ: PACW) tumbled 51%, and KeyCorp (NYSE:KEY) shares are down 26%, and Comerica Inc (NYSE:CMA) down 39%. Big bank shares also fell, with JPMorgan Chase & Co (NYSE:JPM) down 2.7% and Bank of America Corp (NYSE:BAC) down 7.4%.
The Federal Reserve’s interest rate decision is due later this month, and February’s CPI reading is expected to influence the Fed’s decision. Before the weekend’s banking crisis erupted, expectations had risen that the Fed would raise interest rates by half a percentage point. However, futures traders point to a 76% probability that there will be no rate hike.
These expectations have been bolstered by analysts at Goldman Sachs, who said they no longer expect the Fed to raise rates by a quarter of a percentage point this month. The oil industry has also been affected by the banking crisis, with WTI crude futures falling by 3.4% to $73.97 a barrel, and Brent futures dropping by 3% to $80.28 a barrel. Meanwhile, gold futures have rebounded by 2.3% to $1,909.
In conclusion, the collapse of Silicon Valley Bank and Signature Bank has sent shockwaves through the financial world, causing a ripple effect that has affected other banking stocks. While regulators have taken measures to boost confidence in the banking system, broader concerns about banks remain uncertain. The Federal Reserve’s interest rate decision is due later this month, and the CPI reading is expected to influence the decision. Until then, the financial world will watch closely, waiting for any news that might affect the markets.
