SVB’s problems were sparked by customer withdrawals that led the company to liquidate securities positions whose values had plummeted due to the Federal Reserve’s interest rate hikes.
The quick jump in interest rates meant that securities they had bought were selling for significantly less.
That is a situation that probably holds true for other banks and could pose a problem if they need to raise funds.
“What today and this week shows is that we are beginning to feel the effect of Fed tightening on the markets and the economy,” Kourkafas said.
In the United States, hard-hit banks included First Republic Bank which slumped 14.8 per cent, and Comerica, which slipped 5 per cent.
Larger banks like JPMorgan Chase and Bank of America had a mixed performance on Friday.
In London, shares in banking giant HSBC slumped 4.7 per cent, while Standard Chartered fell 4.4 per cent, Barclays 4.1 per cent and Lloyds 3.5 per cent.
In the eurozone, Deutsche Bank tanked 10 per cent at one stage and closed down 7.4 per cent, while French lender Societe Generale slumped 4.5 per cent.
FED RATE HIKE EXPECTED
Meanwhile, US jobs data came in stronger than expected with 311,000 jobs created last month, suggesting more effort may be needed to cool the world’s biggest economy. Analysts expect further interest rate hikes are likely.
Earlier this week, Federal Reserve Chair Jerome Powell warned that the US central bank was prepared to speed up the pace of interest rate hikes and could lift rates higher than earlier anticipated if needed to rein in stubborn inflation.
The Fed has been closely eyeing the jobs market, with labour demand exceeding the supply of available workers.
But Fawad Razaqzada, market analyst at City Index and FOREX.com, said the situation has become more complicated for Powell given the tremors SVB caused in the banking sector.
“The dilemma is that if he opts for more hikes, there is a risk that some regional banks might collapse, while not doing anything could exacerbate inflationary pressures again,” he said.
The dollar fell sharply against its main rivals despite the likelihood of higher US interest rates.
