© Reuters.
Por Rae Wee and Francesco Canepa and Noele Illien
(Reuters) – European bank stocks came back under pressure on Wednesday, with the Swiss credit (SIX:) falling to new lows as investors remain concerned about the sector following the collapse of US Silicon Valley Bank.
Regulators and finance executives around the world have sought to assuage concerns of contagion after SVB, which specializes in financing technology start-ups, and another US bank collapsed last week. Despite this, tensions over the health of financial institutions, especially smaller ones, persist.
At 8:45 am (Brasília time), shares of Credit Suisse fell about 20%, pulling the European banking index to a retreat of more than 6%.
Rapid increases in interest rates have made it harder for some companies to pay back the loans they borrow from banks, increasing the chances of default for banks that are already worried about the possibility of a recession.
However, policymakers at the European Central Bank are still leaning towards an interest rate hike of half a percentage point on Thursday, a source told Reuters, as they expect inflation to remain very high for years to come.
On the other hand, investors also began to doubt the ECB’s commitment to another big rate hike after the collapse of the SVB sent shocks to markets.
But the source said the euro zone central bank was unlikely to abandon its plan to raise rates by 50 basis points on Thursday because that would damage its credibility.
In the US, the focus is shifting to the possibility of tighter regulation of banks, especially intermediaries such as SVB and New York-based Signature Bank, whose collapses triggered market turmoil.
“We’ve injected some stability, but honestly I don’t know if it’s stability or the appearance of stability, because I certainly don’t know what’s going on behind the scenes in the deposit base of several thousand small and medium-sized banks in the US,” said John Briggs, head of global economics and markets strategy from NatWest Markets.
Ratings agency Moody’s on Tuesday revised its outlook on the US banking system from “stable” to “negative”, citing heightened risks for the sector.
Investors were particularly concerned about huge holdings of bonds, mainly US Treasuries, held by Japanese creditors, but Japanese Finance Minister Shunichi Suzuki said on Wednesday that differences in the structure of bank deposits meant that banks local will not face similar issues to SVB.
(Reporting by Rae Wee in Singapore, Francesco Canepa and Balazs Koranyi in Frankfurt, Amanda Cooper and Sinead Cruise in London, Noele Illien in Zurich, Editing)