Hedge fund manager Bill Ackman has warned that the economy is at risk of not functioning unless all deposits are guaranteed, as the contagion spreads to the Big Four. Western Alliance was one of the worst-affected regional banks, experiencing a 75 percent drop in stock value when the opening bell sounded.
Trading circuit breakers were also imposed on First Republic and PacWest, with their stock values plunging by two-thirds and 35 percent, respectively. The central U.S. banks also suffered significant losses, with Wells Fargo plummeting 7.5 percent, Bank of America falling 7.4 percent, Citigroup plunging 5.8 percent, and JP Morgan down 2.7 percent.
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March 14, 2023
Ackman’s warning regarding the need for deposit guarantees comes as the Federal Deposit Insurance Corporation attempts to avert a broader catastrophe in the financial system. Biden addressed the nation from the Roosevelt Room in the White House, trying to restore confidence in the banking system, assuring the public that their money would be safe following a run on Silicon Valley Bank that triggered the second-largest collapse in history, the worst since 2008.
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Despite these efforts, the declines persisted. The Fed announced a new Bank Term Funding Program offering loans to banks for up to a year in exchange for premium collateral like Treasuries.
The collapse of Silicon Valley Bank has ignited anxiety over contagion amid the Fed’s sharpest rate hike cycle since the early 1980s. Investors sought refuge in U.S. government bonds, causing the two-year Treasury yield to tumble to 4.089 percent. The yield has fallen by 100 basis points since Wednesday, marking the most significant three-day decline since the Black Monday crash of 1987.
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Biden defended his response to the financial meltdown, calling for a "full accounting" of what led to the shutdown of Silicon Valley Bank and "why those responsible can be held accountable." He warned that those who backed the failed bank "knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works."
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The failure of Silicon Valley Bank has caused European bank shares to suffer their most significant drop in over a year, with bond markets seeing a significant repricing of rate hike bets. As Wall Street’s so-called "fear gauge" spiked, with the Cboe Volatility Index (VIX) rising to a five-month high at 27.84, the yield on the 10-year U.S. Treasury note fell to 3.507 percent from 3.694 percent on Friday. With Goldman Sachs predicting that the Fed will no longer lift interest rates next week, there has been a significant 66 base point three-day drop in yields, the largest since 1987.
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