Financial and commodity markets mostly fell Monday following the shutdown of Silicon Valley Bank (SVB), a California-based financial institution that mainly catered to high-tech startups, even after US regulators moved to ensure that all depositors would have access to their funds.
US regulators are "taking decisive actions to protect the US economy by strengthening public confidence in our banking system," according to a joint statement Sunday by treasury secretary Janet Yellen, Federal Reserve Board chair Jerome Powell, and Federal Deposit Insurance Corporation (FDIC) chair Martin Gruenberg.
Crude futures fell following Friday's SVB collapse and amid concerns of possible contagion. The Ice front-month May Brent contract was at $81.71/bl at 11:15am ET, down by $1.07/bl from its previous settlement. The Nymex front-month April WTI crude contract was at $75.61/bl, down by $0.89/bl.
"The banking system is safe," President Joe Biden said in televised comments today. "Your deposits will be there when you need them."
Germany's DAX index fell by 1.2pc and the UK's FTSE was off by 2.2pc. In the US, the S&P 500 index was up by 0.6pc, rebounding from a drop in early trading.
Government bond prices rose, pushing down yields, as investors looked to the safety of bonds. Yields on the 10-year US Treasury note fell to 3.5pc, a four-week low.
Aggressive rate hikes by the Federal Reserve over the past year were particularly hard on the technology sector, which saw share values plummet and funding streams dry up. Rising interest rates mean banks have to pay more for deposits while holding dated bonds that pay lower interest rates.
Investors are now leaning toward a quarter-point rate hike at the next Fed policy meeting next week following bets on a half-point hike following last Friday's stronger than expected employment report.
Regulators announced similar steps to rescue New York-based Signature Bank, which was accepting deposits from cryptocurrency companies. "All depositors of this institution will be made whole," the US regulators' statement said. The measures ensure deposits of over $250,000, the maximum covered by FDIC insurance, will be available to depositors.
"This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth," the regulators said.
The statement added that "shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed," it said, referring to both banks.
The Fed said it would "make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors."
