US bank stocks slump as Silicon Valley Bank collapse stirs market turmoil

Bank stocks on Wall Street tumbled on Monday as part of the sweeping reverberations from the collapse of Silicon Valley Bank (SVB), the second largest bank failure in US history.

As the push to block the impact of the collapse failed to worry ally, the development caused market panic causing investors to look for new places for investment.

The S&P 500, the single best measure of US equities, declined 0.3 percent in morning trade, then fell 1.4 percent after falling in bank stocks, particularly regional banks. This caused a halt in trading.

On Sunday, US regulators cracked down after the collapse of SVB as well as Signature Bank.

Regional banks faced the biggest strain, with First Republic Bank shedding 66.3 percent despite assurances Sunday that lenders are meeting their financial obligations with funding from the Federal Reserve and JP Morgan Chase.

Big lenders Morgan Stanley, JP Morgan Chase and Bank of America all collapsed.

“So far, it seems that the banks have some potential problems, and it is important not to extend to the so-called systemically important banks,” said analysts at ING.

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Hopes were strengthened that the Fed would be able to avoid further tightening of monetary policy as banks slumped even as they warmed up for next week’s policy meeting.

At 10 a.m. Eastern Time, the Dow Jones Industrial Average was up 94 points or 0.3 percent at 32,004. The tech-heavy Nasdaq Composite was up 0.1 percent, with both indexes erasing earlier losses.

Performance in Asian equity markets was a mixed bag, seeing shock waves following the US declaration to protect depositors in banks. But the losses were widened in some parts of Europe, for example in Germany where the DAX shed 3.3 percent after bank shares across the continent.

Investor groups want the Fed to quickly adjust interest rate prunes to arrest the situation.

Kevin Cummins, chief US economist at NatWest, said: “At this point, depending on the reaction in the financial markets and the overall economic downturn, we do not rule out that the hiking cycle may end and the next move by Fed officials may be lower, not more upper.

Raising rates can reduce inflation by slowing the economy even as it increases the likelihood of a recession later.

The Fed started raising rates about a year ago, which hampered the bank’s investment portfolio.

The government in London arranged the sale of SVB’s UK subsidiary, Silicon Valley Bank UK Limited, for a nominal sum of one British pound, with HSBC getting the money in a rescue deal.

Although the lender is small, holding bank deposits below 0.2 percent, it is central to financing technology and biotech startups, which the British government relies on to drive economic growth.