US banking system is safe, declares Biden as shares tumble on Wall Street

President Biden yesterday promised Americans that “the banking system is safe” – as fears of contagion after the collapse of Silicon Valley Bank led to yet another massacre in Wall Street.

Shares in a number of America’s regional lenders suffered eye-watering sales even after authorities introduced a backstop guaranteeing all of the country’s deposits.

In the UK, HSBC’s emergency bailout of SVB’s UK arm was welcomed by tech companies who feared collapse if they couldn’t access their cash yesterday morning. The lender – the largest in Europe – will reportedly put £2bn into the company.

But banking shares in London and across Europe slumped on nervousness about the health of the sector in general – sending the FTSE 100 down 2.6 per cent, wiping out more than £50bn of the value of its constituent companies .

The unrest came after government officials and central bankers on both sides of the Atlantic scrambled over the weekend to contain the immediate fallout from the collapse of the California-based SVB on Friday.

It was the largest bank failure since the banking crisis of 2008. Another lender, the New York Signature Bank, also went bankrupt on Sunday.

In a televised address, the US president said, “Americans can trust that the banking system is safe. Your deposits will be there when you need them.’

Biden said those responsible for the crisis should be held accountable and the managers of failed lenders taken over by federal authorities should be fired.

He pushed for stricter regulation of the industry and promised that taxpayers would not bear the losses of any failures.

Biden also made it clear that investors in the bank “will not be protected.” He added: “They knowingly took a risk and if the risk didn’t pay off, investors lose their money. That’s how capitalism works.’

The Wall Street giants fell, Citi fell 7.5 percent and Wells Fargo fell 7.1 percent.

But it was the regional banks that saw the biggest declines, with the San Francisco-based First Republic losing as much as 78 percent as trading was repeatedly halted due to volatility – before partially recovering.

That was despite the bank’s boss saying he had been able to meet the withdrawal requirements after being helped by additional funding from JP Morgan.

Fear: Customers lined up to withdraw money outside a Silicon Valley Bank in Massachusetts yesterday

While not the size of New York’s larger lenders, it still has a significant presence, with assets of £174bn and deposits of £145bn at the end of last year.

In London, shares of Virgin Money – a relatively small lender – fell 9 per cent, or 14.75p, to 149.75p, Barclays fell 6.3 per cent, or 9.94p, to 147.48p, Lloyds lost 5, 1 percent, or 2.55p, to 47.23p, HSBC fell 4.1 percent, or 24.5p, to 568.1p and Natwest fell 4.8 percent, or 13.8p, to 272.2p. In Europe, Credit Suisse – which recently posted a record loss – fell 3 percent and Italy’s Unicredit fell 9 percent.

Shore Capital banking analyst Gary Greenwood said that while it was a specific set of issues that led to SVB’s collapse, there was a “general nervousness in the market” – even if no specific concerns were highlighted.

Greenwood said there may be “some depositors who decide to move their money from smaller banks to larger banks – those are probably corporate deposits.” A spokesman for the Bank of England said: “The wider UK banking system remains safe, sound and well capitalised.”

HSBC’s rescue of SVB’s UK arm – which collapsed on Friday – averted a situation where parts of Britain’s technology sector could have been ‘wiped out’, Chancellor Jeremy Hunt said. The Bank of London, one of the firms involved in early talks to bail out SVB UK, criticized the sale to HSBC as a ‘missed opportunity’.

“It cannot be right that the heritage banks, which have served British entrepreneurs badly for years, are once again taking advantage of their already dominant position,” the report said.