© Reuters. Yellen “scared” bank stocks KBW bank index fell sharply in intraday trading
Zhitong Finance APP was informed that U.S. regional bank stocks fell on Friday after U.S. Treasury Secretary Janet Yellen told bank executives earlier that with a series of regional bank failures, more mergers may be needed.
Yellen also reiterated the strength and soundness of the U.S. banking system when she met with major bank chief executives on Thursday, following the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank.
The KBW Bank Index closed down more than 1.5%, and the intraday decline once expanded to 2%. Western Alliance (WAL.US) closed down 2.44%, and PacWest Bancorp (PACW.US) closed down 1.88%, both falling more than 5% intraday.
Yellen’s comments are further evidence that Biden officials are becoming interested in the idea of bank mergers despite the administration’s own concerns about scrutiny of corporate concentration. Yellen also expressed confidence that the U.S. diversified banking system, which includes institutions of all sizes, is on solid foundations following recent events, the sources said.
Regulators have been forced to rethink the worst banking crisis since 2008, which has been marked by a string of bank failures, plunging share prices and concerns about the business models of regional and mid-sized lenders. Regulators, of course, prefer a merger in which a strong bank takes over a weaker bank than a destabilizing bank failure.
Some have blamed the regional banking crisis in part on the Federal Reserve’s aggressive interest rate policy, which has forced some banks to seek fresh capital to compensate for falling asset values linked to interest rates. Federal Reserve Chairman Jerome Powell said on Friday that the recent problems in the banking industry have eased the pressure on the Fed’s interest rate hike cycle.
Tighter credit conditions mean that “our policy rates may not need to rise as much as they have before in order to achieve our objectives,” Powell noted.
But Tom Plumb, a portfolio manager at Plumb Balanced Fund, said he doesn’t think the Fed will start cutting rates anytime soon as the U.S. economy is still showing signs of strength and inflation hasn’t slowed as quickly as expected.
“People think inflation will come down faster, and the stress and failures of banks in these regions has led to the narrative that the Fed will cut rates at the end of the year. I don’t think that’s the case,” Plumb said.