Why was trading been halted in some banks and will SVB contagion spread? trends now
Financial contagion fears triggered by the collapse of Silicon Valley Bank spread on Monday as shares across the sector plunged.
Such was the panic that trading in at least 20 regional banks had to be temporarily halted as the value of their stock fell by up to 80 percent.
SVB's demise amid a run on the bank - which meant it couldn't cover customer withdrawals - raised fears other small and mid-sized institutions could be at risk. President Joe Biden and Treasury Secretary Janet Yellen were forced into the highly unusual step of issuing statements saying the banking industry is safe.
While analysts say the saga is unlikely to trigger a broader financial crisis on the scale seen in 2008, unrest could continue as the knock-on effects play out.
The collapse of SVB and fears for other banks are inextricably tied to the Federal Reserve's aggressive interest rate rises. Analysts also now believe plans to raise rates again this month could be paused to avoid further turmoil.
President Joe Biden and Janet Yellen, the Treasury Secretary, have sought to ease concerns about the banking sector after stocks tumbled on Monday following the collapse of SVB
Stocks in more than a dozen regional banks tanked when the market opened on Monday.
The rapid fall in their prices caused trading of shares in those institutions to be halted. These 'circuit breaker trading halts' kick in when a price declines rapidly, with the intention of reining in panic selling and preventing an all out crash.
Investors rushed to sell shares in the banks over fears they were facing the same issues which caused SVB to collapse.
SVB failed because it didn't have enough cash to cover consumer withdrawals. This was partly because they'd used a large chunk of customer deposits to buy Treasury-issued bonds.
These bonds are usually considered safe, but the value of SVB's bonds suffered after the Fed increased interest rates to deal with rising inflation. SVB was forced to sell these bonds at a loss of nearly $2 billion to increase its liquidity.
Investors' concerns that a similar situation could be playing out at other banks were raised after the head of the Federal Deposit Insurance Corporation - which guarantees deposits at failed banks - said banks across America are sitting on $620 billion of 'unrealized losses'.
Martin Gruenberg, chair of the Federal Deposit Insurance Corporation (FDIC), on March 6 said there was $620 billion in 'unrealized losses' in U.S. banks. These are partly made up of bonds that have reduced in value due to rising interest rates - which contributed to SVB's collapse
Silicon Valley Bank mainly served startups in the tech sector. Analysts say that while this niche has made its collapse potentially fatal for new and growing tech firms who used the bank, it's softened the impacts for the wider banking sector.
Karen Petrou, managing partner of Federal Financial Analytics, told the Washington Post: 'It's extremely painful. It could have very adverse consequences: microeconomic harm, social welfare harm. People all of sudden could be up the creek. But that's not systemic. I don't think we're at risk of a crisis.'
But while SVB served a someone niche customer base, the issue it faced because of inflation and interest rate hikes exist across the banking sector - as highlighted by the warning of a $620 billion black hole.
That means it could take some time for trust in the industry to be restored.
It also remains to be seen whether the measures unveiled by regulators - including a $25
