Cautious calm returns to banking stocks as focus shifts to regulation

SINGAPORE (Reuters) – Shares of battered Japanese banks recouped some of their steep losses on Wednesday, as regulators and financial executives played down investor concerns about contagion after the collapse of Silicon Valley Bank (SVB).

Nevertheless, markets and financial authorities remained on edge, as US deposit holders seek the safety of big banks amid growing concerns about the health of smaller institutions and the potential for more failures in the sector.

Moody’s Investors Service on Tuesday revised its outlook for the US banking system to “negative” from “stable,” citing heightened risks to the sector.

Focus is also shifting to the possibility of tighter regulation in the US banking sector, particularly for mid-tier banks such as SVB (SIVB.O) and New York-based Signature Bank (SBNY.O), whose collapse last week sent financial markets into turmoil. .

Some calm returned to Wall Street on Tuesday, which boosted Asian markets on Wednesday, as volatility fell (.VIX) and bargain hunters began circling falling SVB assets.

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“In the near term, we’ve instilled some stability, but I honestly don’t know if that’s stability or the semblance of stability, because I certainly don’t know what’s going on behind the scenes in our multi-thousand small to medium deposit base,” said John Briggs, President. Global Economics and Markets Strategy in NatWest Markets, “Volume Banks Across the United States.”

The Tokyo Stock Exchange’s Japanese Banking Index (.IBNKS.T) jumped more than 4% on Wednesday, after three straight days of aggressive selling and the biggest drop since the days after the 2011 earthquake and tsunami in Japan.

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Investors were particularly concerned about the huge bond holdings, particularly in US Treasurys, of Japanese lenders.

However, Japanese Finance Minister Shunichi Suzuki said on Wednesday that differences in the structure of bank deposits mean that domestic banks will not face incidents similar to the collapse of SVB.

“It appears that risk sentiment is returning to normal from the SVB-induced panic,” said Alvin Tan, Head of Asia Currency Strategy at RBC Capital Markets.

The MSCI Asia excluding Japan financial index (.MIAX0FN00PUS) was up 1% last time, reversing some of Tuesday’s 2% drop.

Bruised U.S. bank stocks regained some ground on Tuesday after a rough start to the week, boosted by news that private equity and buyout giants were looking to collect some SVB assets, leaving investors hopeful that efforts to boost confidence will prevent a broader spread. financial crisis.

Apollo Global Management Inc (APO.N), Blackstone Inc (BX.N), and Carlyle Group (CG.O) were among those expressing interest in loan book held by SVB.

Separately, SVB Financial Group said Tuesday that Goldman Sachs Group Inc (GS.N) is the acquirer of a bond portfolio in which it incurred a loss of $1.8 billion, a deal that led to SVB’s failure.

Meanwhile, Charles Schwab (SCHW.N) CEO Walt Pittinger said Tuesday that the bank has ample liquidity and is not currently seeking capital or deals.

Bettinger told Reuters in an interview that the company saw $4 billion in assets flow into its parent company on Friday as clients transferred their assets to Schwab from other companies.

BlackRock (BLK.N) CEO Lawrence Fink warned on Wednesday that the US regional banking sector remains at risk, though he said it wasn’t clear whether a banking crisis triggered by high interest rates would take its toll. More victims.

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The closing of SVB on Friday — two days after the collapse of Signature Bank — forced US President Joe Biden to rush to provide assurances that the financial system was safe and prompted emergency US measures that give banks access to more funding.

In an effort to avoid a similar crisis in the future, the Fed is also considering tougher rules and oversight of medium-sized banks of similar size to SVB.

Adding to the Fed’s dilemma, the US inflation data Tuesday’s exit showed few signs of easing in persistent price pressures within the world’s largest economy, putting the bank in a quandary over how long it should take inflation rates to halt inflation without rocking the financial sector.

“A mixed set of signals is making the Fed more cautious about its next steps and focused on limiting financial contagion,” said Stéphane Meunier, chief investment officer at Lombard-Oudier.

A year after starting to raise interest rates, the Federal Reserve is still chasing evidence that higher borrowing costs are slowing the US economy.

In Asia, the Central Bank of Vietnam took the surprising step of cutting several interest rates on Tuesday, in a bid to increase liquidity and support economic growth amid the global turmoil caused by the collapse of the SVB.

Reporting by Ray Wei. Editing by Sam Holmes

Our standards: Thomson Reuters Trust Principles.

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