The panic flight of investors from financial stocks in the aftermath of the collapse of Silicon Valley Bank and Signature Bank has resulted in the evaporation of a whopping $465 billion from the market capitalization of global banks.
Bloomberg News arrived at this figure after assessing the aggregate market value loss of financial companies that are part of MSCI World Financials Index and the MSCI EM Financials Index.
Panic gripped markets following the collapse of Silicon Valley Bank last week, with investors increasingly becoming sceptical of the safety of banking stocks. SVB went belly up following a quick bank run, prompting California regulators shutting down the bank. The US Federal Deposit Insurance Corporation (FDIC) took over the failed bank, marking the biggest bank failure since 2008 in the United States.
Timeline of Staggering Bank Failure
The stunning bank failure came a day after SVB Financial Group's shares tanked more than 60 percent in the aftermath of a hurried bid to raise capital. The securities investment of the bank came under strain after the US Federal Reserve kept raising interest rates for about a year. A gradual drying up of venture funds, meanwhile, prompted startups to dip into their savings at SVB at a higher rate. This resulted in a liquidity crunch at the bank, which sought to raise at least $2 billion by share sale to meet urgent cash needs. Investors were spooked by the state of the bank's capital adequacy, resulting in a stock collapse that took it to the lowest level since 2016. On the other hand, startup depositors, sensing trouble, started withdrawing funds triggering a bank run.
The Bloomberg report adds that most of the losses were suffered by the US regional banks, as evidenced by the 7.7 percent fall in the KBW Regional Banking Index. Shares of First Republic Bank, which is a full service bank and wealth management company, plunged almost 73 percent.
Losses Across Markets
The MSCI Asia Pacific Financials Index dropped 2.7 percent, the report says. While Mitsubishi UFJ Financial Group Inc. tanked 8.3 percent, South Korea's Hana Financial Group Inc. lost 4.7 percent and Australia's ANZ Group Holdings Ltd. dropped 2.8 percent.
In Europe, shares of Credit Suisse Group AG nosedived 15 percent. In Japan, Jimoto Holdings, Tsukuba Bank and Fukushima Bank also suffered a market rout.
"The financial markets are walking on eggshells .... We really need to know precisely what impact this is likely to have around the broader market. My sense is that the Fed will probably pause because I think this is largely to do with liquidity risk," said John Woods, Credit Suisse Group AG's chief investment officer for Asia-Pacific, according to Bloomberg.
The Federal Reserve said on Sunday that all depositors at Silicon Valley Bank will get their money back. Meanwhile, another US bank, Signature Bank, was also closed by regulators. The Federal Deposit Insurance Corporation (FDIC) took control of the management of Signature Bank, which, according to the New York state's Department of Financial Services, had $110.36 billion in assets and $88.59 billion in deposits at the end of the previous year, according to media reports.
On Monday, HSBC bought the British arm of Silicon Valley Bank for a symbolic price of one pound in a deal sanctioned by the Bank of England (BoE). The deal to buy out the collapsed California-based tech avoids potential adverse fallout for the UK companies that have deposits and investments in the bank. The takeover will be completed immediately.