A Bank Failure Jolts Markets, Sending Stocks Down Sharply
The KBW bank index, which tracks the stocks of 24 major banks, was also lower, and after falling each day of the week ended with a loss of more than 15 percent. The largest Wall Street banks held up better on Friday, with the concern focused on a handful of smaller institutions.
“This should be contained, but it would be excessively optimistic to think these issues won’t weigh on investors’ minds for some time,” David Wagner, portfolio manager at Aptus Capital Advisors, said. “We cannot know for certain how this will play out and the magnitude of the potential domino effect.”
Treasury Secretary Janet L. Yellen, testifying before the House Ways and Means Committee on Friday, said she was monitoring the situation. “There are recent developments that concern a few banks that I’m monitoring very carefully,” she said. “When banks experience financial losses, it is and should be a matter of concern.”
Ahead of Friday’s drop, the outlook on Wall Street had already turned gloomy after the Federal Reserve’s chair, Jerome H. Powell, told lawmakers on Tuesday that the central bank might have to raise interest rates more than it expected, and possibly at a faster clip, as it tried to rein in inflation. Higher interest rates weigh on stock prices, and raise the risk the Fed’s actions may tip the economy into a recession.
Banks can be especially vulnerable to rising rates, which can cause the value of their investment assets to fall, as was the case with SVB. That can hurt their ability to raise money, especially when clients that are also struggling with the rising costs that come from higher rates are pulling their deposits out.
