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Stock markets in Asia fell Tuesday, with shares of banks hit particularly hard, following a decline in U.S. markets amid the fallout from the collapse of two U.S. banks. 

Japan’s Nikkei 225 Index closed down 2.2% with shares of Softbank falling 4.1%, Mizuho Financial Group dropping 7.1% and Sumitomo Mitsui Financial Group sinking 9.8%.  Hong Kong’s Hang Seng Index closed down 2.4% Tuesday. 

U.S President Joe Biden Monday sought to reassure Americans that the U.S. banking system is secure and that taxpayers would not bail out investors at California-based Silicon Valley Bank and the New York-based Signature Bank.    

“Americans can have confidence the banking system is safe. Your deposits are safe,” Biden said in a five-minute statement delivered at the White House.     

He said customers’ deposits will be covered by funds banks routinely pay into a U.S. government-held account for such emergencies.      

Biden vowed, “We must get a full accounting of what happened” at the two banks.     

Despite the assurances, U.S. banks lost about $90 billion in stock market value on Monday as investors feared additional bank failures. The biggest losses came from midsize banks, of the size of Silicon Valley Bank.     

While shares of the country’s biggest banks — such as JP Morgan Chase, Citigroup and Bank of America — also fell Monday, the selloff was not as sharp. The huge banks have been strictly regulated since the 2008 financial crisis and have been repeatedly stress tested by regulators.    

Biden ignored reporters’ questions Monday about the cause of the U.S. bank failures, but financial experts say both banks were affected by a rise in interest rates, which negatively affected the market values of significant portions of their assets, such as bonds and mortgage-backed securities.       

Banks don’t lose money if they hold such notes until maturity. But if they must sell them to cover depositor withdrawals, as was the case in recent days, the losses can quickly mount.       

The Federal Deposit Insurance Corp. reported that industrywide, U.S. banks at the end of last year reported $620 billion in such paper losses caused by rising interest rates.     

The U.S. Federal Reserve, the country’s central bank, announced Monday that it would review its oversight of Silicon Valley Bank in the wake of the bank’s failure.    

“We need to have humility and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Fed vice chair for supervision Michael Barr.      

The FDIC, which insures deposits up to $250,000 and supervises financial institutions, said Monday it transferred all Silicon Valley Bank deposits to a so-called “bridge bank.” The new bank is run by a board appointed by the agency until it can stabilize operations.          

The Bank of England also announced Monday the sale of Silicon Valley Bank’s United Kingdom subsidiary to HSBC to stabilize the bank, “ensuring the continuity of banking services, minimizing disruption to the U.K. technology sector and supporting confidence in the financial system.”      

The actions were prompted by the failure of Silicon Valley Bank, which U.S. regulators seized on Friday after concerns about the bank’s financial health led to a large number of depositors withdrawing their money at the same time.          

With about $200 billion in assets, Silicon Valley Bank’s failure was the second largest in U.S. history. The bank was heavily involved in financing for venture capital firms, especially in the tech sector.            

Signature Bank also had a large portion of clients in the tech sector, including cryptocurrency.  Its failure, with more than $100 billion in assets, was the third largest in U.S. history, behind Washington Mutual and Silicon Valley Bank.           

Some information for this story came from The Associated Press, Agence France-Presse and Reuters. 
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Lebanon’s currency fell to a new low Tuesday, with parallel market rates hitting 100,000 Lebanese pounds to the dollar.

While the official rate is set at 15,000 Lebanese pounds to the dollar, private money exchangers said the black-market rate used in most transactions in the country had reached 100,000 pounds to a dollar.

The currency has been sinking since an economic crisis erupted in Lebanon in 2019, one that the World Bank has called one of the world’s worst since the mid-19th century.

The currency plummet, coupled with withdrawal limits at banks, have led to protests and lawsuits from depositors who say they cannot access their money.

Banks on Tuesday resumed a strike they began in early February to protest judiciary actions against them, including a court order for one of the country’s largest banks to pay some of its depositors’ savings in cash.

Some information for this story came from The Associated Press, Agence France-Presse and Reuters.

 
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U.S. President Joe Biden assured Americans on Monday that the U.S. banking system is secure and that taxpayers would not bail out investors at two banks that collapsed.

“Americans can have confidence the banking system is safe. Your deposits are safe,” Biden said in a five-minute statement delivered at the White House as businesses opened for the work week.

He said that all customers at the California-based Silicon Valley Bank and the New York-based Signature Bank would have immediate access to their deposits as federal financial officials take control of their operations.

“No losses will be borne by taxpayers,” Biden declared. “Managers of these banks will be fired. Investors in these banks will not be protected.”

He said customers’ deposits will be covered by funds banks routinely pay into a U.S. government-held account for such emergencies.

But he vowed, “We must get a full accounting of what happened” at the two banks.

He ignored reporters’ questions about the cause of the failures, but financial experts say both banks were affected by a rise in interest rates, which negatively affected the market values of significant portions of their assets, such as bonds and mortgage-backed securities.

Banks don’t lose money if they hold such notes until maturity. But if they must sell them to cover depositor withdrawals, as was the case in recent days, the losses can quickly mount.

The Federal Deposit Insurance Corp. reported that industrywide, U.S. banks at the end of last year reported $620 billion in such paper losses caused by rising interest rates.

In a statement late Sunday, Biden said, “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”

The statement followed a meeting of officials from top financial regulators, and said the Federal Reserve, the country’s central bank, was also giving other banks access to an emergency lending program to provide additional stability to the wider banking system.

The FDIC, which insures deposits up to $250,000 and supervises financial institutions, said Monday it transferred all Silicon Valley Bank deposits to a so-called “bridge bank.” The new bank is run by a board appointed by the agency until it can stabilize operations.

The Bank of England also announced Monday the sale of Silicon Valley Bank’s United Kingdom subsidiary to HSBC to stabilize the bank, “ensuring the continuity of banking services, minimizing disruption to the U.K. technology sector and supporting confidence in the financial system.”

A Bank of England statement said all depositor money was safe and that Silicon Valley Bank U.K. would continue operating as normal.

The actions were prompted by the failure of Silicon Valley Bank, which U.S. regulators seized on Friday after concerns about the bank’s financial health led to a large number of depositors withdrawing their money at the same time.

With about $200 billion in assets, Silicon Valley Bank’s failure was the second largest in U.S. history. The bank was heavily involved in financing for venture capital firms, especially in the tech sector.

Signature Bank also had a large portion of clients in the tech sector, including cryptocurrency. Its failure, with more than $100 billion in assets, was the third largest in U.S. history, behind Washington Mutual and Silicon Valley Bank.

Some information for this story came from The Associated Press, Agence France-Presse and Reuters.
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U.S. Federal Reserve officials meet next week again chasing persistent inflation but now balancing that against the first acute tremors from the aggressive interest rate hikes the central bank approved over the past year.

The sudden failure of Silicon Valley Bank last week isn’t expected to prevent the Fed from continuing to raise interest rates at its March 21-22 meeting, with inflation still running far above the Fed’s 2% target and Fed chair Jerome Powell indicating monetary policy might need to become even more aggressive.

But it could add a dose of caution to the policy debate and undermine the sense, common among officials so far, that Fed policy had not caused anything to “break” in an economy where spending and job growth have seemed immune to the impact of higher interest rates. 

SVB’s failure, which the Fed came to a view as a potentially systemic shock if bank depositors faced losses, prompted the Fed to announce a new bank lending facility on Sunday in an effort to maintain confidence in the system – effectively putting the Fed back in the business of emergency lending even as it tries to tighten credit overall with higher interest rates.

Given the stakes that bit of dissonance seemed unavoidable, and may be accompanied by a slightly softer approach to monetary policy if risks are seen to be intensifying.

“The threat of a systemic disruption in the banking system is small, but the risk of stoking financial instability may well encourage the Fed to opt for a smaller rate increase at the upcoming meeting,” Oxford Economics economist Bob Schwartz wrote on Friday after SVB was closed by regulators and as officials began examining how to respond to the largest bank failure since the 2007 to 2009 financial crisis.

The upcoming Fed session was already providing a reality check of sorts, as policymakers tried to understand why the rapid rate hikes of the last year have not had more impact on the pace of price increases.

The inflation rate in January actually rose, while an Atlanta Fed real-time projection as of March 8 showed gross domestic product expanding at a 2.6% annual rate, well above the economy’s roughly 2% underlying potential.

Officials were poised to push the expected path of interest rates higher yet again as a result, the third time in their two-year battle against inflation that U.S. policymakers will have shifted on the fly after price increases proved to be faster, broader and more persistent than seen in their forecasts.

A February jobs report released Friday showed the unemployment rate rising to 3.6%. More importantly for the Fed, monthly wage growth slowed even as the economy continued to add jobs, an outcome that leaves open whether the Fed will approve a quarter or a half point rate increase at its next meeting. By late Sunday after the day’s emergency actions, the probability of a half-point hike had diminished to below one-in-five. 

Higher end point?

New inflation data to be released Tuesday and retail sales data on Wednesday both have the potential to push policymakers in either direction at the two-day meeting, which concludes March 22 with a new Federal Open Market Committee statement and projections issued at 2 p.m. EDT (1800 GMT), and a press conference by Powell at 2:30 p.m.

While investors at this point see lower odds of a return to larger rate hikes, there is still the question of just how much higher the Fed will go overall. Powell in his remarks to Congress last week signaled the new “dot plot” of projections for the rate path beyond March would likely be higher than previously expected in order to slow inflation to the central bank’s 2% target from levels more than double that.

As of December the high point for the target federal funds rate was expected by most officials to be 5.1%. In their final public comments before the beginning of a pre-meeting blackout period, Fed officials other than Powell also said they were primed for a more aggressive response if upcoming data show them losing more ground on inflation.

“The ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in congressional testimony that reset expectations for where the Fed was heading, and pushing yields on U.S. Treasury bonds higher and prompting a sell-off in equity markets.

At a Feb. 1 press conference, in contrast, his focus was on a “disinflationary process” he saw taking root.

Developments since then have raised some doubt in investors minds if Fed officials will follow through with that, however, and much of the immediate heat on bond yields and rate expectations eased after Friday’s employment data, with the weekend’s developments in the banking sector to address the Silicon Valley Bank collapse also factoring into the reversal. 

Still nimble?

Government reports released after Powell’s last press conference showed the central bank’s preferred measure of inflation had risen slightly to a 5.4% annual rate.

Revisions to prior months also erased some of the progress policymakers had relied on when they decided to step down to quarter point rate hikes at their last session. A New York Fed study last week suggested moreover that current inflation was being driven more by persistent factors and less by cyclical or sectoral influences that might be quicker to dissipate.

It is not the first time the Fed has been caught out by after-the-fact data updates. In the fall of 2021 the first release of monthly jobs reports seemed to show the job market weakening, taking some of the urgency out of discussions about when to start tightening monetary policy. By the end of the year revisions showed hundreds of thousands more jobs had been added than originally estimated.

“If you are trying to be nimble, this is the risk. And Powell is trying to be nimble,” said former Fed economist John Roberts. 
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U.S. President Joe Biden is due to speak Monday about the banking system after the government acted to try to contain a potential crisis from the failure of two major banks. 

“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said in a statement late Sunday. “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.” 

The U.S. Treasury Department said in a statement Sunday that depositors at the California-based Silicon Valley Bank and the New York-based Signature Bank will have access to all of their money on Monday. 

The regulators also said no losses associated with the resolution of Silicon Valley Bank and Signature Bank will be borne by the taxpayer. 

The statement followed a meeting of officials from top financial regulators, and said the Federal Reserve was also giving other banks access to an emergency lending program to provide additional stability to the wider banking system. 

The actions were prompted by the failure of Silicon Valley Bank, which regulators seized on Friday after concerns about the bank’s financial health led to a large number of depositors withdrawing their money at the same time. 

With about $200 billion in assets, Silicon Valley Bank’s failure was the second-largest in U.S. history.  The bank was heavily involved in financing for venture capital firms, especially in the tech sector. 

Signature Bank also had a large portion of clients in the tech sector, including cryptocurrency. Its failure, with more than $100 billion in assets, was the third-largest in the country’s history. 

Both banks were affected by a rise in interest rates, which negatively affected the market values of significant portions of their assets such as bonds and mortgage-backed securities. 

Some information for this story came from The Associated Press, Agence France-Presse and Reuters. 
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The U.S. government took extraordinary steps Sunday to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring depositors at the failed financial institution that they would be able to access all of their money quickly.

The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread, and only hours before trading began in Asia. Regulators had worked all weekend to try and come up with a buyer for the bank, which was the second largest bank failure in history. Those efforts appeared to have failed as of Sunday.

In a sign of quickly the financial bleeding was occurring, regulators announced that New York-based Signature Bank had failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

The Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients will be protected and have access to their funds and announced steps designed to protect the bank’s customers and prevent more bank runs.

“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.

Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.

Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.

Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley Bank as of Friday and expects to have more information on expected recovery in the coming week, the company said in a statement.

Stitchfix, the popular clothing retail website, disclosed in a recent quarterly report that it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.

Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.

Yellen described rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.

Sheila Bair, who was chairwoman of the FDIC chair during the 2008 financial crisis, recalled that with almost all the bank failures during that time, “we sold a failed bank to a healthy bank. And usually, the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally, that’s the best outcome.”

But with Silicon Valley Bank, she told NBC’s “Meet the Press,” “this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now and playing catch-up.”
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India’s state minister for technology said on Sunday he will meet startups this week to assess the impact on them of Silicon Valley Bank’s collapse, as concerns rise about the fallout for the Indian startup sector. 

California banking regulators shut down Silicon Valley Bank (SVB) on Friday after a run on the lender, which had $209 billion in assets at the end of 2022, with depositors pulling out as much as $42 billion on a single day, rendering it insolvent. 

“Startups are an important part of the new India economy. I will meet with Indian Startups this week to understand impact on them and how the government can help during the crisis,” Rajeev Chandrasekhar, the state minister for IT, said on Twitter. 

India has one of the world’s biggest startup markets, with many clocking multibillion-dollar valuations in recent years and getting the backing of foreign investors, who have made bold bets on digital and other tech businesses. 

SVB’s failure, the biggest in the U.S. since the 2008 financial crisis, has roiled global markets, hit banking stocks and is now unsettling Indian entrepreneurs. 

Two partners at an Indian venture capital fund and one lender to Indian startups told Reuters that they are running checks with portfolio companies on any SVB exposure and if so, whether it is a significant part of their total bank balance. 

Consumer internet startups, which have drawn the bulk of funding in India in recent years, are less affected because they either do not have an SVB account or have minimal exposure to it, the three people said. 

“Spoke to some founders and it is very bad,” Ashish Dave, CEO of Mirae Asset Venture Investments (India), wrote in a tweet. 

“Especially for Indian founders … who setup their U.S. companies and raised their initial round, SVB is default bank. Uncertainty is killing them. Growth ones are relatively safer as they diversified. Last thing founders needed.” 

Software firm Freshworks said it has minimal exposure to the SVB situation relative to the company’s overall balance sheet. 

“As we grew, we brought on larger, diversified banks such as Morgan Stanley, JP Morgan and UBS. The vast majority of our cash and marketable securities today is not held at SVB,” Freshworks said in a blog post, adding that the company does not foresee any disruption to employees or customers. 

Freshworks said it is working with customers and vendors who were using its SVB account to migrate to alternate bank accounts. 

India’s Nazara Technologies Ltd., a mobile gaming company, said in a stock exchange filing that two of its subsidiaries, Kiddopia Inc. and Mediawrkz Inc., hold cash balances totaling $7.75 million or 640 million rupees with SVB. 
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