What it might take to calm banking sector concerns: Time and a Fed rate hike. -Dlight News

What it might take to calm banking sector concerns: Time and a Fed rate hike.

First Republic Bank’s $30 billion injection from America’s largest banks to help boost confidence in the California-based lender and the overall US banking system is not a mission accomplished yet. U.S. stocks continued to slide on Friday, with financial stocks under intense pressure, but First Republic FRC shares -32.80% down 33.8%, or 81% year-to-date, according to FactSet. “I think one of the reasons First Republic is down today has nothing to do with the fact that people are still worried about whether it’s going to go down,” said Mark Stoeckley, CEO and senior portfolio manager at Adams Funds. “Investors are trying to wrap their heads around its business model and what it means for earnings,” Stockel said, especially as lenders and other financial institutions have been forced to recalibrate following an aggressive pace of interest rate hikes by the Federal Reserve. “We’re only a week into this,” Stoeckel said. “All it will take is time.” The higher rates resulted in about $620 billion in unrealized losses at US banks, as the value of “safer” low-coupon Treasury and agency mortgage securities due 2020 and 2021 fell as yields rose. See: The failure of a bank like SVB is a reminder that ‘risk-free’ assets can still ruin portfolios. Another factor is that depositors are shifting cash to today’s higher-yielding Treasuries for income, including the 2-year TMUBMUSD02Y. 3.824% hit 5% about a week ago, before it pulled back to 3.8%. Fears of unknown risks fueled wild swings in bank stocks and Treasury yields this week, as well as fears over whether the Federal Reserve will raise its policy interest rate as investors navigated the worst week of volatility since the 2008 global financial crisis. “Many market participants have experienced a systemic credit crunch only once in their professional careers, and the specter of the financial crisis and the Covid-19 market meltdown are their only historical comparisons,” said Steven Ricciuto, US chief economist at Mizuho Securities. Friday’s Note. Ricciuto cautioned against being “too quick to draw parallels,” but also said that doesn’t mean there are “no real consequences” in financial markets following the failures of Silicon Valley Bank and Signature Bank SBNY, -22.87% and the emergency fund. . The week gained by Credit Suisse CS, -6.94% and First Republic. He expects liquidity in the system to decrease, consolidation in the banking system and banks to clear “their balance sheets of bad assets while raising additional capital”. Investors will also be watching how much they rely on the Fed’s facilities for liquidity, said Mike Mullaney, director of global market research at Boston Partners. Borrowing at the Fed’s discount window rose to $153 billion in the past week through Wednesday, a record high, “but below 2009 levels as a share of overall US bank deposits,” according to BofA Global. Another $11.9 billion was borrowed through the Term Funding Program. “There is no question that there has been an increase in borrowing at the discount window, but most of it has been the Federal Deposit Insurance Corporation,” Mullaney said, possibly related to their recent takeovers of failed banks. “The wild card is unknown,” Mulaney said. “We don’t know if there are other SVBs hiding out there.” Read: A guarantee for all bank deposits should be on the table, former FDIC chief Baer says, adding that another source of concern is what the Fed will do about interest rates at its March 21-22 meeting next week. It has been volatile for traders in Fed Funds futures, but as of Friday, they were pricing in about a 70% chance of a 25 basis point hike to the Fed’s policy rate in the 4.75%-5% range. “I will say this, the important question is: What does the Fed do next week if they don’t raise rates,” Mulaney said. “What message do they send if they don’t? To me, that basically means panic mode, and investors will flee from what they perceive to be a burning building. The Dow Jones Industrial Average DJIA, -1.19% fell 384 points on Friday, the S&P 500 Index SPX, -1.10% fell 1.1% and the Nasdaq Composite Index COMP, -0.74% shed 0.7%, according to FactSet.

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