Yellen tries to assuage fears as US bank stocks slide

US Treasury Secretary Janet Yellen has sought to reassure jittery investors that American bank deposits are safe and promised policymakers have more firepower to battle any crisis even as bank stocks resumed their slide.

Investors have dumped banking stocks globally in the past two weeks, with rapid interest rate hikes to rein in inflation blamed by some as the root cause of the debacle. 

US bank stocks slid again on Thursday, pushing the S&P 500 banks index down to its lowest close since November 2020.

US lender Silicon Valley Bank’s collapse over bond-related losses tied to a surge in interest rates was the initial trigger for the turmoil, and JPMorgan Chase & Co analysts estimate the “most vulnerable” US banks likely lost a total of about $US1 trillion ($A1.5 trillion) in deposits since last year.

Half of the outflows occurred in March after SVB’s collapse, they said.

Policymakers have stressed the turmoil is different from the financial crisis 15 years ago, and Yellen repeated that she was prepared to take more action to protect bank deposits if needed – one of the issues investors are concerned about.

“As I have said, we have used important tools to act quickly to prevent contagion. And they are tools we could use again,” Yellen said in prepared remarks to the US House of Representatives appropriations subcommittee hearing.

“The strong actions we have taken ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

In Europe, the Bank of England became the latest central bank to hike rates this week.

After its 11th straight hike, the BoE said it had noted the “large and volatile moves” in financial markets, but Britain’s banking system remained resilient.

While some of the panic over the fate of banks has abated, investors are adjusting to more challenging economic and lending conditions ahead.

The index of top European banks fell 2.5 per cent, with German banking giants Deutsche Bank and Commerzbank falling 3.2 per cent and 4.1 per cent, respectively. London-headquartered HSBC dropped 2.9 per cent.

US banking shares initially rose on Thursday, with traders citing the Fed’s hints that it could soon pause further increases in borrowing costs as a source of some relief, but later turned negative.

Troubled US regional lender First Republic Bank, which is among banks speaking to peers and investment firms about potential deals, closed down six per cent. About 90 per cent of the bank’s stock market value has evaporated this month.

Other US banks under the microscope after the demise of SVB and Signature Bank added to recent losses. PacWest Bancorp, Comerica and Zion Bancorp each tumbled more than eight per cent.

Earlier on Thursday, the Swiss National Bank raised its benchmark interest rate by 50 basis points and said the takeover of Credit Suisse – the biggest name ensnared by recent turmoil – by its Swiss rival UBS this week had averted a financial disaster.