Investors dumped European bank stocks for a third day in a row Monday, despite dramatic moves over the weekend by the US and UK governments to bolster confidence in the financial system following the collapse of Silicon Valley Bank on Friday.
The European benchmark Stoxx Europe 600 Banks, which tracks 42 major banks in the EU and UK banks, fell 5.6% by mid-afternoon, registering its biggest drop since March last year. The broader Stoxx Europe 600 index fell 2.1%, while the bank-heavy FTSE 100 (UKX) fell 2.2%.
Shares of troubled Swiss bank Credit Suisse (AMJL) plunged 12% to a new record high, before recovering. Shares of HSBC (FTRXX) fell 3.8%, Barclays (ATMP) 5.7%, Deutsche Bank (DB) 4.3% and Italy’s Unicredit (UNCFF) 7.5 %.
The falls heightened fears that the second-largest US banking meltdown in history could be followed by further failures of weaker banks. This is despite the interventions of officials on both sides of the Atlantic to stem the panic and the relatively limited exposure of European banks to the SVB and its customers.
“Investors have always been shaken by the events of the past few days,” Susannah Streeter, head of currency and markets at investment platform Hargreaves Lansdown, told CNN.
On Sunday, the Biden administration promised that customers of SVB and Signature Bank, which was closed on Sunday, would have access to all their money starting Monday. In a break with precedent, the government assured that even uninsured deposits would be returned.
The Federal Reserve will also make additional funds available to eligible financial institutions to prevent runs at similar banks in the future. U.S. banks are sitting on $620 billion in unrealized losses — assets that have fallen in price but have yet to be sold — at the end of 2022, according to the Federal Deposit Insurance Corporation.
It is unclear how many unrealized losses EU and UK banks are carrying on their books.
The extraordinary measures of the American authorities were designed to prevent further bank runs and to help businesses that deposited large sums with banks continue to make payroll and finance their operations.
HSBC (FTRXX), Europe’s biggest bank, announced on Monday morning that it had bought the UK branch of SVB for £1 ($1.2), effective “immediately”. The Bank of England has told SVB UK customers that all their deposits are safe.
Still, investors were nervous in Europe, where officials have yet to pledge additional liquidity support to the broader banking sector, as has happened in the United States.
“The deposit insurance system in the United States is significantly more generous than in Europe, and there is growing expectation that the US Treasury will act quickly to fully guarantee deposits if more banks become insolvent.” , said Streeter.
Chris Beauchamp, chief market analyst at the IG trading platform, agreed. European investors were waiting for “verbal reassurance” from the European Central Bank, he said, which might not arrive until Thursday when it next meets to set interest rates.
“The decision of the American authorities is a sign that they are reacting quickly, while Europe still has to react,” he told CNN.
Beauchamp added that the steeper fall in European bank stocks seen so far on Monday may partly reflect their better performance relative to U.S. banks this year.
The Stoxx Europe 600 Banks Index rose 21% in the first eight weeks of the year, about 12 percentage points higher than the KBW Bank Index, which tracks 24 major US banks. Both indexes have fallen since early March.
“US markets have fallen much more sharply over the past month,” Beauchamp said. “A lot of the pessimism could be factored in.”