The State of the Stock Market Amid the Bank Crisis

The State of the Stock Market Amid the Bank Crisis

An initial sense of relief among investors gave way to renewed concerns about the health of the banking system on Friday, even after steps were taken to prop up struggling lenders with tens of billions of dollars of injections.

Stocks traded lower with shares in banks, including recently rescued mid-tier lender First Republic, continuing their slide, erasing the previous day’s gains.

The moves indicated that there is little confidence that the banking crisis has run its course. Banks in the United States also borrowed record amounts from the Federal Reserve this week to meet short-term needs, in another sign of stress in the financial system, according to recently released data.

The S&P 500 stock index fell about 1 percent in early trade on Friday, with banks big and small seeing declines. The smaller banks at the heart of the recent turmoil have had a particularly tough time.

First Republic shares fell more than 20 percent, erasing all gains from the previous day. Other regional banks, such as PacWest and Western Alliance, fell another 10 percent. Credit Suisse, which received a multi-billion dollar bailout on Thursday, also lost ground in European trading.

An index tracking the largest US banks fell 5 percent and has lost more than 20 percent of its value this year, while the broader market rallied over the period. Amid all the volatility, the S&P 500 remains positive for the year, at least for now.

On Thursday, First Republic Bank, whose share price has plummeted this month, announced a $30 billion bailout. The bank also suspended its dividend and said it would take debt-reduction measures.

Four well-known names in American finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — have agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, the mainstays of Wall Street, each contributed $2.5 billion, and five smaller regional banks each added $1 billion.

The banks, usually bitter rivals, issued a joint statement explaining their move: “America’s bigger banks stand with all banks to support our economy and everyone around us.”

Deputy Treasury Secretary Wally Adeyemo said on CNBC on Friday that US officials were seeing deposits in small and medium-sized banks stabilizing and, in some cases, rising slightly. “This was due in no small part to the way we resolved the two failed institutions,” he said, referring to recent government takeovers by a once-obscure lender to the tech world, Silicon Valley Bank and New York’s tiny Signature Bank .

Credit Suisse announced in Zurich earlier on Thursday that it had taken a $54 billion lifeline from the Swiss central bank. Credit Suisse has been plagued by years of mistakes and controversies that have cost it two CEOs over three years. Shares in the 166-year-old Swiss bank fell to a record low before recovering somewhat.

Other signs of anxiety persist. New Federal Reserve data released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank, using both existing facilities and a new liquidity support program launched after the Silicon Valley Bank and Signature seizures bank was announced.

Analysts at UBS wrote that investors are likely to view First Republic’s bailout as a short-term fix, and that bank stocks “won’t really settle down until the market feels there’s a longer-term fix” to First Republic’s woes . (The deposits First Republic receives from other banks are uninsured and have an initial maturity of 120 days.)

Before the broad banking panic first surfaced last week, the biggest challenge for policymakers was rapid inflation. Central bankers have been caught between trying to tame price hikes without stalling growth. This effort suddenly seemed far more complex with the sudden prospect of back-to-back bank runs.

In China, which is trying to stabilize its economy after stalling last year over strict “zero-Covid” measures, the central bank acted on Friday night to put more money into the hands of businesses and consumers. She said she would reduce by a quarter point the proportion of assets Chinese commercial banks are required to hold in reserve. This gives banks the opportunity to lend more money, especially to real estate developers.

Alan Rappeport, Keith Bradsher, Joe Rennison, Rob Copeland and Lauren Hirsch contributed coverage.