Governments and central banks accelerate movements to create the definitive firewall against the banking crisis that began in the US regional entities. The country’s authorities know that acting quickly is vital to prevent tensions from escalating and, with the second bailout of the First Republic Bank still on the table on Wall Street, the US Treasury yesterday sent a strong message to the market, assuring that they will everything that is necessary to support the banks that need it.
“I will be clear: we have already demonstrated our firm commitment to take the necessary measures to guarantee depositors’ savings,” said the organization’s secretary, Janet Yellen, during a speech before the American Bankers Association. The former president of the Federal Reserve (Fed) was also referring to the plan to protect all Silicon Valley Bank deposits, which on March 10 led to the second largest bankruptcy in the country’s history, compared to the current limit of $250,000 per customer .
The key to his speech, leaked hours before the opening of the US Stock Market, was to open the door to extending that decision to other entities in trouble. “Taking similar measures would be justified if the smallest banks suffer massive withdrawals of deposits,” he assured, just when the sector has been pressing for days for the creation of this new guarantee fund that, in principle, would only work for a certain period (there is talk two years).
The drastic measure would undoubtedly set a precedent for other regions. Also in the euro zone, which –saving the distances and for different reasons– has felt the financial shock with the fall of Credit Suisse. Currently, deposits in Europe, and in Spain, are guaranteed up to 100,000 euros in case of bankruptcy. “Customers must have confidence in our banking system. We remain vigilant, which implies potentially intervening if we see difficulties that pose a risk of contagion,” Yellen insisted yesterday.
For now, his speech has already managed to inject a new wave of optimism into the market, pending the important meeting of the Fed, which this Wednesday will decide whether to raise rates to fight inflation or step on the brakes in the face of the unleashed crisis.
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Investors anticipate that there will be a middle ground: a 25 basis point rate hike –below the 50 that was expected just a few weeks ago– but hinting that the stoppage will come sooner than estimated. Some managers, such as abrdn, even think that “the Fed is much closer to cutting rates than it itself thinks.”
The key, once again, will be in the institution’s speech, from which another sign of firm support for the soundness of the banking system is expected.
Does confidence return?
This perspective that the authorities will do everything necessary to prevent the crisis from prolonging has reactivated purchases on the world stock markets, with increases of 2.4% for the Ibex-35, which recovered 9,000 points with a strong push from the banks in their best session of the year.
Sabadell led with increases of 7.4%, while BBVA, CaixaBank and Bankinter rebounded by more than 5%. For their part, Santander and Unicaja advanced by 4.6%. “In barely a week, the foundations have been laid to solve the main problem that could be generated within the banking system: the lack of liquidity,” says Pedro del Pozo, investment director of Mutualidad de la Abogacía.
In the US, the First Republic Bank shot up 52% due to the aforementioned agreement for a new injection of liquidity.
Despite everything, there is still a way to go for the Ibex-35 to recover the 9,400 points prior to the outbreak of the crisis. Experts agree that it will take time to fully restore trust. And this is also evidenced by the latest survey of Bank of America fund managers, one of the most followed –and reliable– documents for finding out about market trends.
According to its results, published yesterday, 31% of investors believe that a systemic credit event is today the greatest risk for the Stock Markets. Another piece of information: concern about inflation drops from 40% to 25%, losing first place in the ranking of market headaches for the first time in nine months.