The immediate risk for many banks may not be existential, according to analysts, but it could still be painful. Rather than facing a major run on deposits, banks will be forced to compete harder for them by offering higher interest payments to savers. That would erode what banks earn on lending, slashing earnings.
Every bank in the S&P 500 Financials Index tracking major U.S. firms slumped on Thursday, taking the benchmark down 4.1 per cent — its worst day since mid-2020. Santa Clara-based SVB tumbled 60 per cent, while First Republic Bank in San Francisco fell 17 per cent. Ironically, many equity investors had piled into financial stocks to ride out the Federal Reserve’s interest-rate hikes, betting it would pave the way for lenders to earn more. For them, this week has been a shock.Christopher Whalen, Whalen Global Advisors
SVB announced the stock offering as its clients — firms backed by venture capital — withdrew deposits after burning through their funding. The lender liquidated substantially all of the securities available for sale in its portfolio and updated a forecast for the year to include a sharper decline in net interest income.
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