Top US lenders shed $52bn

On Thursday, the four biggest US banks saw their stock prices drop by a total of $52bn as the financial sector reacted to SVB Financial’s reported difficulties. Shares in the major Silicon Valley-focused lender plummeted by 60% after it announced that it had lost $1.8bn from sales of securities intended to raise funds. The fall in share prices rippled through the financial sector, with the largest US bank, JPMorgan Chase, seeing a 5.4% drop. Bank of America and Wells Fargo both fell by 6.2%, and Citigroup was down by 4.1%.

The problems at SVB are thought to be linked to the lender’s involvement with venture capital and private equity, which have struggled as interest rates have climbed. As a result, the industries have increased their withdrawals of funds, causing SVB to seek more liquidity. The core issue at SVB is a lack of funding diversification, with most deposits coming from venture capital. This situation does not represent the whole banking industry but has affected sentiment, according to Wells Fargo’s Mike Mayo.

S&P has downgraded SVB’s debt rating by one notch, suggesting that the company is likely to face further withdrawals. SVB’s disclosure comes alongside news that crypto banking giant Silvergate plans to shut down in the face of cryptocurrency market turmoil. Though the two events are unrelated, an expert said that the struggles of the two banks have raised questions about the health of the banking industry. Yokum added that while most banks are unlikely to experience a run on their deposits, some have seen deposit outflows as investors seek higher yields elsewhere.

The US Federal Deposit Insurance Corporation (FDIC) has also warned about high interest rates affecting banks’ portfolios. A recent report stated that “longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values.” As of the end of 2022, the total amount of banks’ unrealised losses on those securities totalled approximately $620bn. Banks generally wait for bonds to mature, but if there is a run on deposits, they could be forced to sell their securities and book significant losses.