The Silicon Valley Bank saga ain’t over yet. The federal government may have taken over the collapsed institution’s assets and guaranteed account access to depositors, but the persistent uncertainty over bank safety and financial sector health continues to wreak market havoc. It’s somewhat understandable: Last week, in just a few days, three banks—Silvergate, SVB, and Signature—all fell for different reasons, with the latter two making for the United States’ largest bank failures since the 2008 collapse of Washington Mutual, which presaged the financial crisis. As such, the Biden administration’s attempts to reassure the public of the banking industry’s stability (and the offer of a crisis-lending facility for banks to lean on) didn’t calm turbulence among bank stocks. Shares in major international institutions were volatile all week, European countries took emergency measures to prop up their own sectors, the word contagion stuck to investors’ lips, overall stock indices remain down as of Friday, and to top it all off, SVB’s parent company has now filed for Chapter 11 bankruptcy protection.
It’s a weird moment. But is the banking sector actually placing us closer to economic peril? Here are some of the week’s most chilling—and reassuring!–developments.
According to Bloomberg, the San Francisco–based First Republic Bank has had its “worst week ever,” despite outside players’ keen interest in holding the $212 billion institution aloft. On Monday, despite earning some emergency assistance from both the Federal Reserve and JPMorgan Chase, First Republic shares tanked by 62 percent, and Moody’s declared that it was looking into whether the bank warranted a downgrade from its A-minus rating. Other banks like Wells Fargo and Comerica also experienced significant losses that day, with the overall sector experiencing its worst selloff cycle in years, but First Republic underwent the steepest crash of all. The S&P Global offered no additional confidence, reducing the bank’s credit rating to “junk” by Wednesday. (The analytics firm claimed that First Republic remained vulnerable to an SVB-like bank run.) That move helped to crash First Republic’s stock again that day, this time to its lowest level in a decade; executives pondered a full-on sale of the bank to a bigger institution.
By Thursday, as reported by Bloomberg, 11 other banks pledged $30 billion of assistance to First Republic. Still, on Friday morning, the bank shed nearly a quarter of its value after making some important announcements: that it had borrowed tens of billions of dollars from the Fed, and that it was suspending dividend payouts. Investors aren’t yanking the plug just yet, but they aren’t sure that First Republic will make a solid recovery, especially in light of news that the bank’s executives sold off $12 million worth of shares over the months leading up to the SVB bank run.
Outside of First Republic, the Switzerland-based investment bank Credit Suisse Group AG probably caused the most headaches this week. As economist Adam Tooze detailed in his Chartbook newsletter, Credit Suisse has been battered by scandals since 2021, when it started facing legal consequences for various misdeeds over the decades: holding accounts with criminal enterprises, pushing Mozambique into economic crisis through a yearslong bribery scheme, reportedly spying on employees, and violating U.S. sanctions. So it was already in a precarious spot going into this year, as disgruntled investors yanked out their deposits en masse over the past few months. In addition, Credit Suisse has shed employees, and the bank reported a multibillion-dollar loss by 2022’s end. A planned corporate reorganization, U.S. scrutiny over bank financials, and a March 5 full-stake selloff from Credit Suisse’s largest shareholder didn’t help things.
So, as the SVB crisis kicked off last Friday and persisted over the weekend, Credit Suisse stocks plunged to all-time lows on the Swiss exchange, thanks to mass share selloffs induced by SVB’s fall. On Wednesday, that rout continued after Credit Suisse disclosed issues with its financial reporting, and after the bank’s current largest shareholder, Saudi National Bank, told Bloomberg that it could not take on more investment in the Swiss bank. On Thursday morning, the bank announced that it would receive nearly $54 billion in liquid cash from Swiss National Bank. Yet its stock sank again on Friday due to low confidence in the bank’s prospects.
Analysts from JPMorgan have laid out three paths forward for Credit Suisse: 1) The bank survives after completing its planned corporate overhauls; 2) Swiss regulators offer deposit guarantees or a wholesale bank bailout; 3) fellow Swiss bank UBS acquires Credit Suisse. At the moment, no one scenario appears more likely than the other.
The financial services firm’s stock freefall was so severe this week that its namesake founder lost about $3 billion of his fortune. Like SVB, the Charles Schwab Corporation holds ample investment in long-term Treasury bonds, stoking fears that it would fall into the same sell-off-dwindling-stock-to-pay-off-panicked-depositors cycle that helped bring down Silicon Valley Bank. On Wednesday, executives and board members collectively bought up millions of dollars of company shares, which helped give the firm a slight value bump. Investors still have concerns over Schwab, especially since its customers are rearranging their investments within the bank’s portfolio toward “safer” government-backed investments; the corporation’s stock value fell by nearly 7 percent Friday morning.
Western Alliance Bancorporation
The Arizona-based regional bank lost 82 percent of its value on Monday, spurring the New York Stock Exchange to halt trading of Western Alliance shares. This plummet was surprising, since the business appeared to be in good shape even while SVB collapsed, and it had extra funds at its disposal. That even a safer investment bank like Western Alliance could fall so hard at week’s open? A potential contagion alert, no doubt. The bank’s stock fell again by 8 percent Thursday after credit analyst Fitch Ratings announced a review of Western Alliance’s debt for possible downgrade, just days after Moody’s issued its own downgrade warning. Overall financial nervousness further depressed Western Alliance stock by 18 percent Friday morning.
The other regional bank to take a hard pounding from the SVB fallout was the Los Angeles–based PacWest Bancorp, which lost more than 52 percent of its value on Monday and also had its trading frozen that day. On Thursday, Fitch Ratings announced that it planned to downgrade PacWest’s credit in the short term, fueling another value PacWest value drop. The California bank was likely kept at a distance because of its own multibillion-dollar exposure to venture capital–funded startups—that is, the very type of flailing business whose economic frailty consigned the startup-indebted SVB to history. PacWest ended the week with total losses second only to those of First Republic, with the regional bank’s stock sliding by another 13 percent on Friday.
Bitcoin and Crypto
Not a bank, obviously, but worth taking a look. Bitcoin, still wracked by last year’s cryptocurrency disasters, surged over the week to close out Friday at its highest level since June, according to the Wall Street Journal. Since the digital currency has long been touted as a hedge against fiat-money upsets like the SVB fallout, it’s likely that the recent spate of bank runs has reinvigorated confidence in the virtual coin. Bitcoin’s $26,300 market cap remains far below the currency’s all-time peak—the $65,000 bounty in November 2021—but this week has provided the most reassuring news for the digital economy in a long time. It wasn’t limited to Bitcoin: The namesake currency of the Ethereum blockchain, Ether, also surged throughout the week to land at a $1,719.92 on Friday—its highest since nearing the $2,000 threshold in August 2022.
Is there a “winner” in the SVB crisis outside of cryptocurrencies? Yes indeed: Bloomberg reported Friday that small-time community banks were gaining new deposits and business as customers shifted their money away from rickety midsize banks. Depositors probably view these tinier banks as safe havens; community banks insure the bulk of their accounts and tend to have high standards in deciding where to invest customer funds. Plus, they’re not planning on slowing down their outward investment anytime soon, which provides a hedge against bigger institutions that may cool it on their spending lest the bank runs come for them. The new hot banking category may be the firms that are, in fact, too small to fail.