Credit Suisse and First Republic Bank shares have continued to be battered by a lack of investor confidence despite multibillion-dollar support deals.
Stockmarkets around the world continued to fall as the sell-off in both banks kept up.
The Swiss lender saw its shares drop by more than 10 per cent on Friday and it was revealed that several major European banks had placed restrictions on dealings with the troubled Swiss lender. It also emerged that Credit Suisse had seen more than $450m withdrawn from funds it manages in just three days this week.
Wall Street closed down as did London’s FTSE 100, as fears about the soundness of the world’s banks continued to grow.
Chris Beauchamp, chief analyst at IG, said: “Hopes the banking crisis would continue to fade have themselves grown weaker, as stocks fell again. Credit Suisse continues to be the bugbear for Europe, while in the US First Republic worries are still the main driver of losses.
“This week has been a liquidity crisis, but it seems that the moves by authorities to remedy the situation have not completely reassured wary investors.”
US President Biden called for officials to be given greater powers to hold bank executives to account for banking failures.
“When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again,” he said.
Swiss politicians also vowed to bring those responsible for Credit Suisse’s problems to account and urged it to clean up its act after years of scandals.
In the US, shares in the First Republic Bank also fell by almost 25 per cent just a day after fears of its collapse had prompted an unprecedented deal put together by powerful US banks, as well as US economic leaders, including US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell.
Despite the rescue deal, its shares plummeted after the bank announced it was suspending its dividend payment to shareholders and revealed it has $34bn in cash, excluding the new deposit injection.
The lender also disclosed it had borrowed up to $109bn from the US Federal Reserve and an additional $1bn from the Federal Home Loan Bank earlier this month.
Shares of Wall Street banks including JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo involved in the San Francisco-based lender’s rescue also dropped between 3-4 per cent.
“The significance of the changes in (the company’s) balance sheet in just one week are staggering…and along with the suspension of the common stock dividend, paints a very dire outlook for the company and shareholders,” Chris McGratty, of bank research company KBW, said.
Founded in 1985, First Republic had $212bn in assets and $176.4bn in deposits at the end of 2022, according to its annual report.
Official figures from the US Federal Reserve showed banks operating in the US sought a record $152.9bn in emergency funding from the US central bank last week – a figure greater than the previous high set during the worst of the 2008 financial crisis.
The new record speaks to the “funding and liquidity strains on banks, driven by weakening depositor confidence,” the ratings agency Moody’s said.
As fears about the impact on confidence in the wider banking sector grew, it was reported that global regulators held talks on Friday to discuss ways to calm the markets.
Authorities have repeatedly tried to emphasise that the current turmoil is different to the global financial crisis 15 years ago, as banks have more funds to deal with – but their assurances have often fallen on deaf ears.
The European Central Bank continued to insist it saw no contagion threat for other euro zone banks from the turmoil. It held an unscheduled board meeting to discuss the stresses and volatility in the banking sector. The ECB board were told deposits were stable across the euro zone and exposure to Credit Suisse was immaterial, Reuters reported.
Executives at Credit Suisse are reported to be meeting over the weekend to discuss what can be done to reverse the bank’s fortunes. Plans are reported to include breaking up the bank and raising funds via a public offering of its ringfenced Swiss division, as well as the sell-off of its wealth and asset management units.
In the latest sign of its mounting troubles, at least four major banks including Societe Generale and Deutsche Bank are said to have put in place restrictions on their trades involving the 167-year-old Swiss bank.
Switzerland’s Social Democrats (SP), the second largest party in the lower house of the parliament, called for a full inquiry into who was responsible for a crisis “everyone should have seen coming”.
“Our system hasn’t managed to hold those responsible who should be held responsible,” SP co-president Cedric Wermuth said. “Who knew what, when …. Who knew when we had a systemic problem …. Who should have sounded the alarm when it was necessary?” he asked.
Earlier US President Biden, calling for stronger powers to deal with bank failures, said: “No one is above the law and strengthening accountability is an important deterrent to prevent mismanagement in the future.”
His call came as the Silicon Valley Bank’s former parent company filed for bankruptcy protection a week after a run on deposits prompted regulators to seize its banking unit.
SVB Financial Group listed assets and liabilities of as much as $10bn (£8.2bn) each in a Chapter 11 petition filed in New York to protect its remaining assets and work on repaying creditors. The bank was placed in receivership by the FDIC.