Can We Trust The Banking System?
With Silicon Valley Bank experiencing a bank run, regulators intervened quickly. They took control of the Signature Bank in addition to the Silicon Valley Bank. The regulator has reassured depositors that they will access their money at no cost to the taxpayers.
However, consumer confidence in the banking and baking sectors seems to have diminished considerably, despite the regulator’s reassurance and expeditious government intervention. The event continues to shake the financial industry and consumers.
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Troubled Banks Abroad
Swiss Bank Credit Suisse’s stock price declined 20% after one of its financial backers announced they would withdraw their support. Other European banks experienced a similar fate, with the Deutsche Bank experiencing a 9% stock price drop.
US Bank Consumer Confidence
The decline of stock prices in the banking sectors in the US has also been a feature of the latest developments. Silicon Valley Bank and Signature Bank’s failure and the news about Credit Suisse have caused a large decline in some regional bank stocks.
For instance, First Republic’s stocks experienced a 19% decline (although the S&P Global Ratings’ downgrade of their debt rating may have also influenced its stock decline). PacWest Bancorp’s stock dropped over 17%.
Banking giants have not been immune to the stock price decline. Citigroup fell by 6%, Wells Fargo dropped by over 4%, and JP Morgan and Goldman Sachs fell by 4%.
Contagion Will Potentially Continue
With other banks exposed to huge potential securities losses, the contagion is likely to continue. Consequently, the banking sector might renew interest in and focus on shoring up their balance sheets rather than focusing on lending.
Additionally, the crisis could potentially lead to an enhancement of regulations, increasing the cost of doing business for banks in the US. Some experts reckon this is just the beginning of the crisis, and we are yet to see the last of the crashes, especially with the Fed increasing interest rates.
Related Reading: Which Banks Could Fail in 2023?
Gold Has Risen Again As A Safe-Haven Asset
Gold rallied with the decline of bank stocks. It has hit $1,926 per ounce, a near record for 2023. Bitcoins have also done well in the last few days.
Do not leave yourself and your wealth exposed; protect your wealth by investing in gold.