Shares in several U.S. banks sell off hard as government takes over another bank.
Governments in the U.S., Britain and Canada are taking extraordinary steps to prevent a potential banking crisis after the failure of California-based Silicon Valley Bank prompted fears of a broader upheaval.
U.S. regulators worked through the weekend to find a buyer for the bank, which had more than $200 billion in assets and catered to tech startups, venture capital firms, and well-paid technology workers.
While those efforts were not successful as of Monday morning, officials assured all of the bank’s customers that they would be able to access their money.
Late on Sunday, Treasury Secretary Janet Yellen announced that all depositors will have access to their funds, no matter how much they had in the bank.
“Small businesses across the country that have deposit accounts at these banks can breathe easier knowing they will be able to pay their workers and pay their bills,” U.S. President Joe Biden said at a press conference on Monday morning.
“Hard-working employees can breathe easier as well,” Biden said, stressing that the bill for that safeguard will not be borne by taxpayers and will instead come out of the fees that banks pay for deposit insurance, which is run by the Federal Deposit Insurance Company, or FDIC, and by law only covers the first $250,000.
Investors in the bank, however, will likely be wiped out. “They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
Management at the bank has been fired, Biden noted. “If a bank is taken over by FDIC, the people running the bank should not work there anymore,” he said.
The early response from investors was mixed, with shares in Canada’s five biggest banks down by between two and four per cent in early trading. Major U.S. lenders like JPMorgan, Citibank and others were down slightly as well, but several U.S. banks saw large losses.
Shares in California-based First Republic Bank, which saw long customer lineups over the weekend, were down 66 per cent before trading was halted. Western Alliance Bancorp was down by 77 per cent. PacWest lost half its value, Comerica was off by 40 per cent while Charles Schwab was down by 15 per cent.
Karl Schamotta, chief market strategist with Corpay, says volatility on the stock market is likely in the short-term at least.
“We had years of very, very cheap money but now we’ve seen rates move up at perhaps the sharpest pace in modern history — and we’re now beginning to see things break” he told CBC News in an interview Monday.
“Investors need to brace themselves really, for a very turbulent period ahead.”
Source/ CBC
