Despite US SVB Measures... Regional Banks Still Unstable, Stock Prices Plummet

Despite the federal government's emergency measures to contain the fallout from the bankruptcy of Silicon Valley Bank (SVB) in the United States, stock prices continue to plunge, especially among small and regional banks. This is due to ongoing concerns that, despite measures such as depositor protection, the spark could spread to smaller banks. There is also persistent fear that the next weak link could be mortgages.

On the afternoon of the 13th (local time) at the New York Stock Exchange, First Republic Bank was trading at more than 50% below the previous close. First Republic, which had been engulfed in crisis rumors following the SVB incident, showed a sharp decline even before the market opened and trading was halted several times during the session. PacWest Bancorp also showed a level about 45% lower than the previous close.

[Image source=Reuters Yonhap News]

These regionally based small- to mid-sized banks have been considered potential successors to New York's Signature Bank if the SVB crisis spreads. First Republic, based in San Francisco, announced after the incident that it had secured emergency funds and that "liquidity is sufficient," but failed to calm investors' anxieties. As of the end of last year, First Republic's total assets and total deposits were $212.6 billion and $176.4 billion respectively, surpassing the already bankrupt SVB. If the SVB crisis spreads to First Republic, it could deliver an even greater shock to the market.

Ally Financial, KeyCorp, Fifth Third Bancorp, Comerica, and others are also suffering from widespread sell-offs. These banks also experienced temporary trading halts due to sharp price drops early in the session. Earlier, MarketWatch had listed 20 U.S. banks with risks similar to SVB, naming these institutions side by side. They all share the commonality of being heavily exposed to unrealized securities losses or having a high ratio of Accumulated Other Comprehensive Income (AOCI) to total equity. AOCI is considered a key indicator that could lead to future losses for companies.

Wall Street holds the view that the SVB incident will not escalate into a systemic crisis like the 2008 global financial crisis, but investor caution remains high, especially around bank stocks. The New York Stock Exchange, which started the day lower, rebounded thanks to additional measures from the Joe Biden administration and the president's speech, but S&P 500 bank-related stocks still showed a decline approaching 3%. Concerns about the soundness of the U.S. financial system have yet to subside.

The SPDR S&P Regional Banking ETF and SPDR S&P Bank ETF were also trading more than 10% and 8% lower respectively as of the afternoon. CNBC reported that bank ETFs had fallen to their lowest levels since November 2020. Not only small regional banks but also large banks were not safe zones. Bank of America (BoA) was down about 4%, Citibank about 6%, and Wells Fargo about 5%.

Solita Marcelli, Chief Investment Officer (CIO) at UBS Global Wealth Management, said, "While some bank sell-offs seem excessive, it is unclear when this 'crisis of confidence' will improve," emphasizing that "it is very important for financial institutions to maintain the trust of depositors and investors." Marcelli also added, "We cannot rule out the possibility that other banks will face similar concerns."

There are already diagnoses that the aftershocks surrounding the SVB incident are leading to mortgage instability. The Wall Street Journal (WSJ), citing a JP Morgan report, analyzed that mortgage-related debt interest rates surged sharply that day, signaling an expected wave of selling. First Republic, which is feared to be the second SVB, is a representative case that aggressively expanded mortgages in the past but has recently been struggling due to the Federal Reserve's interest rate hikes.

Chris Senek, Chief Investment Strategist at Wolfe Research, warned that this incident could be a warning sign of a potential explosion across the market. While agreeing with investors' optimism that the SVB incident will not escalate to the scale of the Lehman Brothers collapse, he pointed out concerns such as the decline in virtual assets and liquidity issues in the Treasury market affecting many financial institutions, including regional banks.

The U.S. Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) announced various measures on Sunday evening, including full guarantees of deposits exceeding insurance limits at SVB, Signature Bank, and others, as well as the introduction of new lending programs. President Joe Biden, in a national address before the market opened that morning, emphasized, "Thanks to swift actions over the past few days, Americans can be confident that the banking system is safe," adding, "All customers who had deposits at SVB can rest assured. Your deposits are safe." He also clearly stated plans to strengthen financial regulations to prevent such incidents from recurring.

Some have pointed out that the background of this incident lies in the financial deregulation carried out during former President Donald Trump's administration. The U.S. enacted the Dodd-Frank Act in 2010 to strengthen financial regulations to prevent a recurrence of the 2008 financial crisis, but during the Trump administration in 2018, the law was amended to significantly ease regulations on small and regional banks, excluding large banks classified as Global Systemically Important Banks (G-SIBs). President Biden also pointed out the deregulation under the Trump administration in his speech that day, saying, "I will ask Congress and financial authorities to strengthen bank-related regulations that can protect American jobs and small businesses."

This content was produced with the assistance of AI translation services.