Washington, United States–President Joe Biden sought to reassure Americans over the country’s financial system Monday as more US banks and leading European lenders were hammered amid contagion worries.
Silicon Valley Bank — a key lender to startups across the United States since the 1980s — collapsed after a sudden run on deposits, prompting regulators to seize control Friday.
On Sunday night, US federal authorities stepped in to protect all depositors at SVB, and regulators took over a second troubled lender.
“Americans can have confidence that the banking system is safe,” Biden said in a brief White House address. “Your deposits will be there when you need them.”
But there were immediate signs of pressure at additional US lenders.
San Francisco-based First Republic Bank shares plunged around 62 percent, while Ohio-headquartered KeyCorp lost 27 percent and Zion Bancorporation lost 26 percent.
There was also plenty of red on the screens in Europe, where bourses in Paris, Frankfurt and Milan fell around three percent or more.
Germany’s Commerzbank closed down nearly 13 percent, Spain’s Santander shed more than seven percent and the Netherlands’ ING fell nearly six percent.
Credit Swiss, already mired in scandal, closed down nearly 10 percent.
“Far from calming nerves, fear of contagion has ramped up further with investors dumping risk assets across Europe,” City Index analyst Fiona Cincotta told AFP.
Also read: Biden vows to fix ‘mess’ as US regulators rush to contain SVB fallout
“Banks are leading the charge southwards with investors taking aim at Spanish and Italian banks, suggesting that these are considered the weakest links.”
Recession risk rises
Most financial market watchers are optimistic that the upheaval will not be comparable to the 2008 financial crisis.
Still, many forecasters see a rising risk of recession, especially in light of expectations that the central banks will continue to lift interest rates.
The next major move is expected Thursday when the European Central Bank meets for a likely half a percentage point interest rate increase.
Biden praised the “immediate” action taken by officials.
In a joint statement on Sunday, the US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday.
They added that depositors in Signature Bank — a New York-based regional-size lender with significant cryptocurrency exposure that was shuttered on Sunday after its stock price tanked — would also be “made whole.”
The Fed announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.
While the government is ensuring that SVB depositors get their money back, “no losses will be borne by the taxpayers,” Biden said.
Biden said the management of the failed banks would lose their jobs and that shareholders would not have their losses covered.