In an effort to combat inflation in the face of the unrest that has reverberated through the global banking system this month, the Bank of England raised interest rates on Thursday, following the Federal Reserve and the Swiss National Bank in doing so.
Investors had questioned if the central banks could continue tightening policy after the failure of two U.S. bankers earlier this month caused unrest in banks all over the world, entangling 167-year-old Credit Suisse AG, one of Europe's largest banking companies.
The BoE stated that it had observed the "large and turbulent movements" in financial markets but that Britain's banking sector had held up well after its eleventh consecutive hike.
"The (Monetary policy committee) will continue to monitor closely any effect on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook," it said.
Even though the recent market fears have subsided, they have forced investors to prepare for future, more difficult economic and lending situations.
The top European bank index fell 1.7%, with the two largest German banks, Commerzbank and Deutsche Bank, losing 2.1% and 3.2%, respectively. HSBC, with headquarters in London, fell 2.5%.
First Republic Bank, a troubled regional lender in the United States, increased 2% in premarket trade after falling on Wednesday.
The gains of PacWest Bancorp, Truist Financial Corp, and Western Alliance Bancorp, three additional U.S. banks, ranged from 0.8% to 3%.
The acquisition of Credit Suisse by its Swiss rival UBS earlier on Thursday was credited with preventing a financial catastrophe by the Swiss National Bank, which also increased its benchmark interest rate by 50 basis points.
In order to complete the transaction, Swiss authorities had pressed the banks to cooperate and provided financial guarantees worth up to 260 billion Swiss francs ($280 billion).
"At this moment the focus has to be that we can maintain financial stability and that the closing of the deal is smooth and fast," SNB Chairman Thomas Jordan told a news conference.
A day after the Fed announced another quarter-point rate increase, the European central banks also increased rates. Fed Chair Jerome Powell had said that the stress in the banking sector might lead to a credit crunch, which would have "severe" effects on the slowing U.S. economy.
The banking industry in Europe was downgraded by Citigroup, which issued a warning that the quick rate increases will further harm the economy and lenders' profitability.
"The European banking sector's fundamentals look healthy. But the ongoing confidence crisis could limit banks' risk appetite and reduce the flow of credit," Citigroup equity strategists said.
Following the failures of the New York-based Signature Bank and the California-based Silicon Valley Bank (SVB), the bailout of Credit Suisse sparked wider concerns about investors' exposure to a precarious banking sector.
The Swiss financial market regulator FINMA on Thursday defended its choice to subject some Credit Suisse bondholders to significant losses as part of its bailout, claiming the action was legally sound.
The $275 billion market for Additional Tier 1 (AT1) bonds was shaken by the decision to put shareholders above AT1 bondholders, and some Credit Suisse AT1 bondholders sought legal counsel.
The convertible bonds were created to be used in rescues in order to avoid the costs of bailouts being passed along to taxpayers, as occurred in 2008 during the global financial crisis.
"The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a 'viability event', in particular if extraordinary government support is granted," FINMA said.
Following the annihilation of Credit Suisse's AT1 bondholders, steep drops in banking shares caused European supervisors to scramble to defend the crisis-fighting mechanism.
While Asian officials are also attempting to assuage investor jitters regarding AT1 bonds, new debt sales are likely to be constrained by the current turmoil.
If a bank failed in either Hong Kong or Singapore, the central banks there declared they would follow the conventional order of creditors' claims.
At least two Japanese banks, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, may decide to halt AT1 issuance as a result of the volatility, according to two individuals who spoke to Reuters.
Government officials have emphasized that the current unrest is different from the crisis 15 years ago since banks are better capitalized and cash are more readily available.
Yet, other observers caution that in an era of broad social media use, the banking sector is more susceptible to rumors and quick decisions, creating a problem for regulators trying to contain volatility.
According to Citigroup Inc. CEO Jane Fraser, social media is a "total game-changer" in bank runs. She made this statement on Wednesday at the Economic Club of Washington, D.C.
(Source:www.reuters.com)
Investors had questioned if the central banks could continue tightening policy after the failure of two U.S. bankers earlier this month caused unrest in banks all over the world, entangling 167-year-old Credit Suisse AG, one of Europe's largest banking companies.
The BoE stated that it had observed the "large and turbulent movements" in financial markets but that Britain's banking sector had held up well after its eleventh consecutive hike.
"The (Monetary policy committee) will continue to monitor closely any effect on the credit conditions faced by households and businesses, and hence the impact on the macroeconomic and inflation outlook," it said.
Even though the recent market fears have subsided, they have forced investors to prepare for future, more difficult economic and lending situations.
The top European bank index fell 1.7%, with the two largest German banks, Commerzbank and Deutsche Bank, losing 2.1% and 3.2%, respectively. HSBC, with headquarters in London, fell 2.5%.
First Republic Bank, a troubled regional lender in the United States, increased 2% in premarket trade after falling on Wednesday.
The gains of PacWest Bancorp, Truist Financial Corp, and Western Alliance Bancorp, three additional U.S. banks, ranged from 0.8% to 3%.
The acquisition of Credit Suisse by its Swiss rival UBS earlier on Thursday was credited with preventing a financial catastrophe by the Swiss National Bank, which also increased its benchmark interest rate by 50 basis points.
In order to complete the transaction, Swiss authorities had pressed the banks to cooperate and provided financial guarantees worth up to 260 billion Swiss francs ($280 billion).
"At this moment the focus has to be that we can maintain financial stability and that the closing of the deal is smooth and fast," SNB Chairman Thomas Jordan told a news conference.
A day after the Fed announced another quarter-point rate increase, the European central banks also increased rates. Fed Chair Jerome Powell had said that the stress in the banking sector might lead to a credit crunch, which would have "severe" effects on the slowing U.S. economy.
The banking industry in Europe was downgraded by Citigroup, which issued a warning that the quick rate increases will further harm the economy and lenders' profitability.
"The European banking sector's fundamentals look healthy. But the ongoing confidence crisis could limit banks' risk appetite and reduce the flow of credit," Citigroup equity strategists said.
Following the failures of the New York-based Signature Bank and the California-based Silicon Valley Bank (SVB), the bailout of Credit Suisse sparked wider concerns about investors' exposure to a precarious banking sector.
The Swiss financial market regulator FINMA on Thursday defended its choice to subject some Credit Suisse bondholders to significant losses as part of its bailout, claiming the action was legally sound.
The $275 billion market for Additional Tier 1 (AT1) bonds was shaken by the decision to put shareholders above AT1 bondholders, and some Credit Suisse AT1 bondholders sought legal counsel.
The convertible bonds were created to be used in rescues in order to avoid the costs of bailouts being passed along to taxpayers, as occurred in 2008 during the global financial crisis.
"The AT1 instruments issued by Credit Suisse contractually provide that they will be completely written down in a 'viability event', in particular if extraordinary government support is granted," FINMA said.
Following the annihilation of Credit Suisse's AT1 bondholders, steep drops in banking shares caused European supervisors to scramble to defend the crisis-fighting mechanism.
While Asian officials are also attempting to assuage investor jitters regarding AT1 bonds, new debt sales are likely to be constrained by the current turmoil.
If a bank failed in either Hong Kong or Singapore, the central banks there declared they would follow the conventional order of creditors' claims.
At least two Japanese banks, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group, may decide to halt AT1 issuance as a result of the volatility, according to two individuals who spoke to Reuters.
Government officials have emphasized that the current unrest is different from the crisis 15 years ago since banks are better capitalized and cash are more readily available.
Yet, other observers caution that in an era of broad social media use, the banking sector is more susceptible to rumors and quick decisions, creating a problem for regulators trying to contain volatility.
According to Citigroup Inc. CEO Jane Fraser, social media is a "total game-changer" in bank runs. She made this statement on Wednesday at the Economic Club of Washington, D.C.
(Source:www.reuters.com)
