Monday’s Stock Market Roller Coaster Session Shows Banks’ Sales May Ease Current Crisis

Monday’s Stock Market Roller Coaster Session Shows Banks’ Sales May Ease Current Crisis

Monday’s stock trading was a veritable roller coaster, but the market closed slightly up positively. Traders are feeling better about the moves to shore up the global financial system after the collapse of four banks (Silicon Valley Bank, Signature Bank, First Republic Bank, and Credit Suisse). The salvation of the Swiss institution appears to be an important reason for the slightly positive move.

The Dow Jones Industrial Average jumped 382.60 points, or 1.20%, to close at 32,244.58. Meanwhile, the S&P 500 rose 0.89% to end the session at 3,951.57. The Nasdaq Compositegained 0.39% and closed at 11,675.54.

Regional banks rose on Monday, rebounding from big losses in the past week. Wall Street expects more action may be needed to restore confidence in the banking system after U.S. regulators backstopped SVB’s uninsured deposits and offered new funding for troubled banks.

The SPDR Regional Banking ETF (KRE) gained more than 1% after tumbling 14% last week. PacWest, First Citizens and Fifth Third Bancorp were among the major gainers. The ETF rose 5% at one point during the trading session, but saw some of its gains reverse as First Republic shares fell 47%.

“There’s just a fundamental issue here,” said Eric Diton, president and managing director of The Wealth Alliance. “People who are holding uninsured deposits at regional banks are nervous and the banking system is based on competence, and trust. You’re not going to put your life savings somewhere, if you’re not 100% confident that it’s going to be there when when you need it.”

During this session, First Republic Bank was easily the S&P 500’s biggest loser on the stock market.

Shares of First Republic Bank were down nearly 50% on Monday after credit rating agency Standard & Poor’s warned that a $30 billion rescue plan inked for the troubled bank last week may not be enough.

The San Francisco-based regional bank, saw its stock price plummet 47% after Standard & Poor’s slashed its credit rating from BB+ to B+ on Sunday, saying “substantial” concerns remain about the bank’s financial health.

…A BB+ credit rating is considered below investment grade, which means that the financial institution in question is particularly vulnerable to economic headwinds and thus is at higher risk of default.

At this point, it appears that New York Community Bank will buy a major portion of New York’s Signature Bank.

The Federal Deposit Insurance Corp. on Sunday announced the deal in which New York Community Bank agreed to purchase $38.4 billion of Signature Bank’s assets — about a third of its total $110 billion in assets when it failed last week.

The remaining $60 billion in Signature Bank’s loans will stay in receivership until they are eventually sold off, the FDIC said.

The Swiss are extremely troubled by the developments at Credit Suisse.

On Sunday, one of Switzerland’s biggest newspapers featured a drawing of Credit Suisse Group AG’s headquarters in flames. The image, meant to evoke what the headline said were the bank’s “last days,” was also a metaphor for the embarrassment and consternation the lender’s swift unraveling has caused in its home country.

…With Credit Suisse’s fate seemingly settled after years of corporate scandals, infighting and misplaced investments, a nation that prides itself on orderliness and stability is left pondering the ramifications for its own reputation — as well as the potential economic and political fallout.

For some, the debacle also raises questions about Switzerland’s financial regulator and whether authorities should have stepped in earlier to head off a crisis before it got out of control.

“Switzerland has suffered another damaging blow to its reputation for prudence, stability and fiscal management,” said Kern Alexander, professor of law and finance at the University of Zurich. “This is another example where weak regulation leads to a banking failure and a crisis that we hope will be contained.”

The move may have eased the current crisis, but there are signs more problems are anticipated. America’s midsize banks are reportedly asking the Federal Deposit Insurance Corporation (FDIC) to insure all bank deposits over the next two years to prevent more bank runs.

In a letter to federal regulators, the Mid-Size Bank Coalition of America said that insuring all deposits would “immediately halt the exodus of deposits from smaller banks,” according to a report from Bloomberg News.

“Notwithstanding the overall health and safety of the banking industry, confidence has been eroded in all but the largest banks,” the group wrote. “Confidence in our banking system as a whole must be immediately restored.”

The FDIC currently insures deposits up to $250,000, a figure that lawmakers and federal officials now say is too low. Countless Silicon Valley Bank depositors exceeded that cap, prompting regulators to protect all deposits in an effort to shore up confidence in U.S. banks.

But Treasury Secretary Janet Yellen told lawmakers last week that regulators would only protect uninsured deposits in banks that are large enough to have an impact on the financial system, drawing concerns from smaller institutions.

It doesn’t matter what Yellen says today, as it will likely be different tomorrow.

Flashback: Janet Yellen June 2017 pic.twitter.com/BcakvOICoP

— Wall Street Silver (@WallStreetSilv) March 20, 2023

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