Collapse of Silicon Valley Bank (SVB) sends markets tumbling. Additionally, Global markets saw a significant decline on Friday due to concerns over further aggressive interest rate hikes following positive US jobs data.
Despite Wall Street’s indices experiencing a positive turn, the closing of SVB sent stocks tumbling again. London’s equity markets experienced a sharp decrease of 1.7 percent, while Frankfurt and Paris dropped 1.3 percent. Asian stocks also reported steep losses.
The announcement of SVB’s stock offering and the selling of securities to raise funds led to the collapse of the firm’s shares by 60 percent on Thursday. Trading was suspended on Friday morning before regulators announced the closure of the bank, marking it as the largest retail bank to fail since 2008. The company struggled with falling deposits, leading to customer withdrawals that resulted in the liquidation of securities positions. The values of these securities had plummeted due to the Federal Reserve’s interest rate hikes. Other banks may face a similar problem if they need to raise funds.
Angelos Kourkafas, of financial services firm Edward Jones, believes that the current situation does not reflect systemic risk but has shaken confidence. First Republic Bank suffered a slump of 14.8 percent, and Comerica slipped five percent. Larger banks like JPMorgan Chase and Bank of America had a mixed performance on Friday. Meanwhile, shares in HSBC slumped 4.7 percent, Standard Chartered fell 4.4 percent, Barclays 4.1 percent, and Lloyds 3.5 percent. Deutsche Bank tanked 10 percent at one stage and closed down 7.4 percent in the eurozone, while French lender Societe Generale slumped 4.5 percent.
The recent events demonstrate that the markets and the economy are beginning to feel the effects of the Federal Reserve’s interest rate hikes. Banks may face similar issues as SVB due to the quick jump in interest rates, causing securities to sell for significantly less. The situation has caused concern regarding the banking sector and its impact on the global economy.
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