US lender shares slides

Investors are concerned that the banking crisis that has been affecting financial markets is not yet over, causing shares in several regional banks in the US to plummet. This comes after First Republic collapsed and was seized by regulators and sold, following the withdrawal of more than $100bn by worried customers. Shareholders were severely affected, and investors are now looking for signs of potential risks at other banks.

The US banking sector is currently adjusting to a sharp rise in interest rates, with the US central bank having raised its benchmark rate to over 4.75%. The US economy is being impacted by these moves, which could result in businesses and households struggling to make debt payments, thus hurting the banks. There are concerns that lurking risks to banks in the commercial property sector may also impact the banking industry, as remote work has led to a fall in demand for office space.

The higher interest rates are causing some banks to face issues, as the market value of some debts issued when borrowing costs were lower is now being negatively affected. Panic was sparked in March after the sudden collapse of Silicon Valley Bank, which was the 16th largest lender in the US. This led to global sell-offs of bank shares and many US bank customers shifting their money to firms considered safer. This ultimately affected smaller, regional banks such as Signature Bank and First Republic, which could not survive the loss of funds.

JP Morgan Chase’s CEO, Jamie Dimon, who bought First Republic from the government, stated that he believed that the fall of First Republic marked the end of “this part” of the crisis. However, analysts are still concerned that the US banking system may be heading towards a wave of consolidation as the economy weakens, similar to the 1980s, when hundreds of lenders closed after being caught off guard by a sharp rise in interest rates and bad commercial property loans.