(PresidentialHill.com)- Banks have taken quite a hit in the stock market this week, whether or not they were directly involved in the sudden collapse of Silicon Valley Bank, Signature Bank and others.
On Friday, stocks dropped yet again, only one day after they started to climb ever so slightly on Thursday. This shows that investors don’t have much confidence about the country avoiding a full-scale banking crisis, even as the federal government and other bigger investment banks have tried to inject billions into the failed banks.
Regional bank First Republic, for instance, lost another one-third of its value, after tumbling considerably earlier in the week already. In the past month, its stock price is down 81.25%.
Overall, the S&P 500 dropped 1.1% in value on Friday, which marked the worst day of the week for trading.
Also on Friday, President Joe Biden begged Congress to grant some financial regulators new and broad powers to hand down punishment to the executives of the failed banks. Just one day before, data that was released showed that U.S. financial institutions borrowed from the Federal Reserve in record amounts this week so that they could meet all their needs on a short-term basis.
That was another really bad sign that there may be even more acute stresses going on in the country’s financial system.
This crisis all started when SVB started demanding deposits because they were worried about losses they were taking on some of their investments – namely bonds and treasuries that they bought when interest rates were near zero. Customers started withdrawing money en masse after that announcement, causing a run on the bank, and forcing regulators to seize it.
Just a few days later, New York’s Signature Bank collapsed as well, which further undermined investor sentiment in the nation’s banking sector. It also caused overall concerns about how it might affect the economy as a whole.
Nationwide’s chief of investment research, Mark Hackett, said this week:
“Sentiment remains weak, and investor positioning remains conservative. However, investors should recognize that this is not a repeat of the financial crisis. It is disruptive for the industry and painful for a select group of banks and institutions, but the comparison to the financial crisis is premature.”
That comparison to the financial crisis of 2008 keeps popping up, yet many investors are still worried that this ordeal could eventually turn into something catastrophic like that did.
Investors are worried that even if smaller banks are able to remain afloat, any pullback in their lending activity – if coupled with an economy that’s under pressure – could have much broader implications. For example, cash could be less obtainable by businesses at a time when they might most need it.
Such a scenario would also result in the banks themselves not gaining new business, just when some of their sizable deposits have disappeared.
Morningstar analyst Michael Wong commented:
“The solvency concerns have not completely gone away. But even if you solve the concerns from a bank run, if a bank loses a large amount of its deposits and they don’t return, then basically that bank has lost a large amount of its earnings potential.”