Rising interest rates have left banks laden with low-interest bonds that can’t be sold in a hurry without losses. So if too many customers tap their deposits at once, it risks a vicious cycle.
have sent US bank stocks diving and tongues wagging across the industry: could this be the start of a much bigger problem?high-flying California lenders was an unusually fickle base of depositors who yanked money quickly.
The immediate risk for many banks may not be existential, according to analysts, but it could still be painful. Rather than facing a major run on deposits, banks will be forced to compete harder for them by offering higher interest payments to savers. That would erode what banks earn on lending, slashing earnings.Small- and mid-sized banks, where funding is usually less diversified, may come under particular pressure, forcing them to sell more stock and dilute current investors.
SVB announced the stock offering as its clients — firms backed by venture capital — withdrew deposits after burning through their funding. The lender liquidated substantially all of the securities available for sale in its portfolio and updated a forecast for the year to include a sharper decline in net interest income.
US bank stocks also came under pressure this week after KeyCorp warned about the mounting pressure to reward savers. The regional lender lowered its forecast for growing net interest income in the current fiscal year to 1 per cent to 4 per cent, down from 6 per cent to 9 per cent, because of the “competitive pricing environment.” Its stock fell 7 per cent on Thursday.
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