Banking shares dropped in Europe on Thursday as the instability that rippled through the global banking system this month is prompting investors to adjust to more challenging economic and lending conditions ahead.
U.S. authorities have jumped to stem the turmoil this month by protecting the depositors of tech-focussed SVB, but U.S. Treasury Secretary Janet Yellen rejected expanding that protection more widely. Yellen told lawmakers on Wednesday that she has not considered or discussed "blanket insurance" for deposits without approval by Congress.
Yellen's remarks came as Powell sought to reassure investors about the soundness of the banking system, saying that the management of SVB "failed badly," but that the bank's collapse did not indicate wider weaknesses in the sector. The Fed's relentless rate hikes to rein in inflation are among factors blamed for the biggest banking sector meltdown since the 2008 financial crisis.
"The Fed is now living on a hope and a prayer that they haven’t done irreparable harm to the banking system," said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin. "The Fed is probably thinking financial stresses are substituting for future rate increases.
However, some watchers think the banking system is more vulnerable to rumour and rapid moves in an era of widespread social media use, posing aSocial media is a "complete game-changer" in bank runs, Citigroup IncReporting by Reuters bureaus; Writing by Toby Chopra Editing by Tomasz Janowski
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