Three days after US regulators stepped in to rescue the banking sector and two failed banks, the Swiss central bank offered Credit Suisse a large lifeline to restore confidence in the banking system.
Credit Suisse accepted, borrowing up to $54 billion from the Swiss National Bank. Although that calmed some nerves, markets remain extraordinarily volatile. US markets were set to open lower. Asian markets tumbled. Europe’s markets were only tepidly higher after Wednesday’s rout.
Focus has shifted again to: Who’s next? What’s the next domino to fall?
First Republic Bank is the consensus choice. Fitch Ratings and S&P on Wednesday both downgraded the bank’s credit rating over concerns that depositors could pull their cash despite federal intervention. The bank is reportedly exploring strategic options, including a sale, according to Bloomberg. (That’s Wall Street for: Help!) First Republic’s stock fell 28% in premarket trading.
On Thursday, Fitch Ratings put Western Alliance bank on notice, saying its credit rating could fall if customers continued to pull money out of the bank. Shares of Western Alliance, a regional bank like SVB, fell 10% in premarket trading. PacWest Bank fell 16%, and shares of other regional banks fell again, too.
Customers continue to shun regional banks despite government intervention. Although nothing close to SVB’s collapse has taken place this week, many customers have pulled money from smaller banks and put their funds in larger banks. Bank of America, Wells Fargo and Citigroup have all received a significant increase in deposits since Silicon Valley Bank ran into trouble last week, people familiar with the matter tell CNN.
Regulators continued to try to calm nerves. US Treasury Secretary Janet Yellen, set to testify before Congress Thursday at 10 a.m. ET, said the banking system remains secure. The Office of the Comptroller of the Currency, a key US banking regulator, said Thursday it was stepping up oversight of the banking industry.
But Wall Street remains on edge. JPMorgan said in a note to clients that the Swiss central bank’s intervention was insufficient, and Credit Suisse will most likely need to be taken over.
In the meantime, concerns continue to shift from Credit Suisse to other parts of the banking industry.
“The problems at Credit Suisse are very different to those that brought down SVB a few days ago,” noted Neil Shearing, Group Chief Economist of Capital Economics. “But they serve as a reminder that as interest rates rise, vulnerabilities are lurking in the financial system.”
Key areas to monitor, Shearing says: Smaller European banks, shadow banks and open-ended funds that might struggle under pressure from customers withdrawing money — and a boat-load of government bonds in their portfolios that have crumbled in value as rates have surged.