The buying mood was seen at the start of trading on Tuesday on a number of world stock exchanges. However, a number of analysts and policy maker warned this sector would remain fragile.
By
MAHDI MUHAMMAD
·4 minutes read
NEW YORK, TUESDAY — Global stock prices rose at the opening of trading on Tuesday (28/3/2023), after earlier fears that more banks might run into financial difficulties. The share prices increased following a report that a new investor would take over Silicon Valley Bank (SVB).
However, a number of analysts and policy makers in the banking and financial sector warned that this sector would remain fragile if there were no bigger regulatory changes.
The buying mood was seen at the start of trading on Tuesday on a number of world stock exchanges. The CAC 40 index in France increased 0.5 percent to 7,116.72 in early trading. This was also experienced by the German DAX index, which rose 0.4 percent to 15,191.93 and the United Kingdom's FTSE 100, which rose 0.4 percent to 7,5034.04. The Dow Jones Industrial Average also rose 0.1 percent.
Stock markets in Asia also experienced boosts following positive sentiment in the banking sector in the United States and Europe. Japan's Nikkei 225 index increased 1 percent to 7,034.10. South Korea's Kospi Index also rose 1.1 percent to 2,434.94 and the Hang Seng rose 0.9 percent to 19,751.94. Only the Shanghai Composite Index fell by 0.2 percent to 3,245.38.
“Asian equities were positive on Tuesday, lifted by mostly higher major indices in the previous session. Receding fears surrounding the banking crisis and surging oil prices led to solid risk-taking flows,” Anderson Alves at ActivTrades said in a report.
The collapse of SVB, which had been the backbone of start-up funding in the US, and the fears surrounding Credit Suisse after its shares plunged, triggering a sell-off in bank shares. The shareholders were worried that the contagion would spread to other banks. There was also a fear that Deutsche Bank in Germany would be the next victim after its share price plunged over the weekend.
There was also a fear that SVB and Credit Suisse issues would cause a delay or even cancellation of loans for various small and medium enterprises. That in turn could lead to layoffs, slower growth and a higher risk of recession.
There were indications of the easing of market panic on Monday after First Citizens BancShares Inc. agreed to buy most of SVB’s assets. First Citizens, which has a reputation as a buyer of troubled companies, bought all the loans and deposits of SVB, giving Federal Deposit Insurance Corp (FDIC) equity rights in its stock worth as much as US$500 million in return.
First Citizens also said it would use $110 billion in assets, $56 billion in deposits and $72 billion in loans to acquire SVB. First Citizens Bank’s stock soared 53.7 per cent in Monday’s trading session after it unveiled its plan to buy SVB.
Crisis of confidence
The situation surrounding banks in the US and Europe has resulted in a crisis of confidence in the banking system. Andrea Enria from the European Central Bank (ECB) said she saw the nervousness and anxiety of the market and investors about the current situation.
Bank of England governor Andrew Bailey said SVB's collapse had been the fastest since the closure of Bank of England's Barings in 1995 after heavy derivatives losses caused by rogue trader Nick Leeson.
Bailey said the pressure that caused the crisis of confidence at Credit Suisse was caused by specific problems at Switzerland's second-largest bank. Speaking to the British parliament, he insisted that British banking conditions were not like those in the US or Switzerland. Even so, he stated that the tension in the market would continue to increase.
The managing director of the International Monetary Fund, Kristalina Georgieva, while in Beijing last weekend also warned that risks to financial stability had increased, especially due to turmoil in the banking sector. “Uncertainty is very high. It is clear that the risks to global financial stability are also increasing," she said while addressing the China Development Forum. (AP/AFP/REUTERS)