Stocks dropped on Friday, signaling that investors had little confidence that the banking crisis had run its course despite moves to shore up flailing lenders with injections of tens of billions of dollars.
The shares of many banks resumed their dizzying slide, erasing gains from Thursday that had provided a brief moment of calm during a tumultuous week. First Republic, the beleaguered regional lender, lost a third of its already beaten-down value on Friday alone. The S&P 500 stock index fell about 1.1 percent — the week’s worst day of trading.
President Biden asked Congress on Friday to grant financial regulators broad new powers to punish the executives of failed lenders. A day earlier, data showed that banks in the United States borrowed record amounts from the Federal Reserve this week to meet short-term needs, another sign of acute stresses in the financial system.
The crisis was set in motion last week when clients of Silicon Valley Bank began to demand deposits as they worried about the losses the lender was taking on some investments. The run on deposits was too much, and regulators seized SVB.
A second bank, Signature in New York, fell days later, providing the backdrop to a week of whipsaw trading that undermined confidence in the banking sector and prompted concerns about the effects on the economy.
“Sentiment remains weak, and investor positioning remains conservative,” said Mark Hackett, the chief of investment research at the insurance company Nationwide. “However, investors should recognize that this is not a repeat of the financial crisis. It is disruptive for the industry and painful for a select group of banks and institutions, but the comparison to the financial crisis is premature.”
Still, investors have begun to worry about the longer-term implications of financial turmoil, analysts said. Even if the small banks can remain solvent, a pullback in lending activity, if it came with the economy under pressure, could have broader implications, making cash less available to businesses when they might need it most. It also means less new business for the banks themselves, after a period when some lost sizable deposits.
“The solvency concerns have not completely gone away,” said Michael Wong, an analyst at Morningstar. “But even if you solve the concerns from a bank run, if a bank loses a large amount of its deposits and they don’t return, then basically that bank has lost a large amount of its earnings potential.”
First Republic’s shares fell more than 30 percent on Friday. Other regional banks also came under pressure, with PacWest and Western Alliance both falling between 15 and 20 percent. Credit Suisse, the Swiss bank that received a multibillion-dollar rescue on Thursday, also lost ground in European trading.
The KBW bank index, which tracks the performance of 24 US banks, skidded more than 5 percent and has lost over 20 percent of its value this year, versus a small gain in the broader market over that period.
On Thursday, First Republic, whose stock price has cratered this month, announced a $30 billion rescue package. The bank also suspended its dividend and said it would take measures to reduce its debt.
Four storied names in American finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, mainstays of Wall Street, pitched in $2.5 billion apiece, and five smaller regional banks added $1 billion each.
The banks, normally fierce rivals, issued a joint statement explaining their move: “America’s larger banks stand united with all banks to support our economy and all of those around us.”
The deputy Treasury secretary, Wally Adeyemo, said on CNBC on Friday that U.S. officials were seeing deposit levels stabilizing in small and midsize banks, and in some cases modestly rising. “This was due in no small fact to the way that we resolved the two institutions that failed,” he said, referring to the recent government takeovers of a once-obscure lender to the tech world, Silicon Valley Bank, and the small Signature Bank in New York.
Mr. Biden’s appeal for new legislation would expand the regulator powers held by the Federal Deposit Insurance Corporation, which seized control of Silicon Valley Bank and Signature Bank. The proposal would allow the agency to claw back compensation from executives of failed banks, as well as bar them from taking other jobs in the financial industry.
Earlier on Thursday, in Zurich, Credit Suisse announced that it had grabbed a $54 billion lifeline from Switzerland’s central bank. Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years. Shares in the 166-year-old Swiss bank had plunged to a record low before recovering somewhat.
Other signs of anxiety persist. New data from the Federal Reserve released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank, tapping both existing facilities and a new program to shore up liquidity that was announced after the seizure of Silicon Valley Bank and Signature Bank.
Analysts at UBS wrote that investors were likely to see First Republic’s rescue as a short-term fix and that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes. (The deposits given to First Republic from other banks are uninsured and for an initial term of 120 days.)
Reporting was contributed by Alan Rappeport, Keith Bradsher, Rob Copeland and Lauren Hirsch.
