ECB meets to discuss banking strains after US bailout relief

By Pete Schroeder, Tom Westbrook and Scott Murdoch

March 17 (Reuters) – European Central Bank supervisors met on Friday to tackle growing cracks in the banking system, after $30 billion in aid to the U.S.’s First Republic Bank eased concerns. fears of an imminent collapse. .

Big U.S. banks injected the funds into the San Francisco-based bank on Thursday, rushing to bail out the bank caught in a deepening crisis triggered by the failure of two other midsize U.S. banks over the past week.

The package came less than a day after Swiss bank Credit Suisse secured an emergency loan from the Swiss central bank of up to $54 billion to bolster its liquidity.

The deals helped restore calm to global markets on Thursday and Friday after a busy week for bank stocks.

“The supervisory board meets to exchange views and provide members with up-to-date information on the latest developments in the banking sector,” an ECB spokesman told Reuters.

The ECB, which raised interest rates by 50 basis points on Thursday, held another ad hoc supervisory board meeting earlier this week, in an unusual move ahead of a meeting scheduled for next week.

“French and European banks are very solid,” Francois Villeroy de Galhau, head of economic policy at the ECB and governor of the French central bank, told economic radio BFM.

According to several analysts, the authorities seem willing to deal quickly with systemic risks, but they fear that the possibility of a banking crisis is far from being ruled out.

Thursday’s data showed U.S. banks have requested record amounts of emergency liquidity from the Federal Reserve in recent days, increasing the size of the central bank’s balance sheet after months of contraction.

The deal was crafted by key market players, including US Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and JPMorgan Chase CEO Jamie Dimon, who discussed the package this week, a source says. close to the location.

“They will pump the money into the First Republic to keep it alive for their own benefit, (…) to stop the spread of panic among the banks. Then they will phase it out and the bank will slowly die,” said Mathan Somasundaram, founder of Deep Data Analytics Analytics Center in Sydney.

However, while shares of First Republic Bank rose 10% on news of the bailout, they fell 17% after the bank announced it would suspend its dividend and disclosed its stance. cash and the amount of emergency cash.

Some of the biggest names in U.S. banking, including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, Wells Fargo & Co, Goldman Sachs and Morgan Stanley, participated in the bailout, according to a statement from the banks.

Although the support averted an imminent collapse, investors were surprised by the latest revelations about the First Republic’s cash position, even after the injection, and by how much it and other banks relied on the Reserve federal this month.

“I don’t think we’re in the middle of a global financial crisis. Balance sheets are much better than in 2008, banks are better regulated,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets. “But people fear the risk of contagion is real and that is shaking confidence.”

Credit Suisse has become the first major global bank to avail itself of an emergency lifeline since the 2008 financial crisis, amid doubts over central banks’ ability to sustain aggressive rate hikes to curb the ‘inflation.

LESSONS FROM 2008

For now, the authorities are confident in the resilience of the banking system and have tried to point out that the current turmoil is different from the global financial crisis of 15 years ago, at a time when banks were better capitalized and funds are easier to obtain.

On Thursday, the European Central Bank hiked rates by 50 basis points, arguing that eurozone banks were in good shape and that a rate hike should instead boost their margins.

Attention now turns to the Fed’s policy decision next week and whether it will continue its aggressive interest rate hikes as it attempts to control inflation.

In Asia, Singapore, Australia and New Zealand said they were keeping tabs on financial markets but were confident their local banks were well capitalized and able to withstand major shocks.

Although capital levels remain adequate, analysts say the A$300 billion (US$201 billion) refinancing of major Australian banks is about to go awry due to appetite for new debt.

The Ministry of Finance, the financial regulator and the Central Bank of Japan announced that they would meet on Friday to discuss developments in financial markets.

Bank stocks around the world have taken a hit since Silicon Valley Bank plunged last week on bond-related losses that piled up when interest rates rose last year, raising questions about what could haunt the banking system in general.

European banks have lost about $165 billion in market value since March 8, according to Refinitiv data.

(Reporting by Pete Schroeder and Chris Prentice in Washington, Nupur Anand in New York, Tom Westbrook and Rae Wee in Singapore, Scott Murdoch in Sydney and Noel Randewich in Oakland; Writing by Deepa Babington and Sam Holmes; Editing in Spanish by Benjamín Mejías Valence and Jose Munoz)