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Tag: Recessions and depressions

  • Stocks flip to gains on Wall Street, Treasury yields swing

    Stocks flip to gains on Wall Street, Treasury yields swing

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    NEW YORK — Stocks flipped to gains Thursday amid hopes for help for a bank at the center of Wall Street’s hunt for what’s next to crack in the struggling industry.

    The S&P 500 was 0.8% higher in midday trading after erasing an earlier loss of nearly that much following reports that First Republic Bank could receive financial assistance or sell itself to another bank.

    The Dow Jones Industrial Average was up 103 points, or 0.3%, at 31,978, as of 11:20 a.m. Eastern time, while the Nasdaq composite was 1.3% higher.

    This week has been a whirlwind for markets globally on worries about banks that may be bending under the weight of the fastest set of hikes to interest rates in decades. The crisis of confidence has been flaring since Friday’s collapse of Silicon Valley Bank, which was the second largest bank failure in U.S. history.

    Since then, Wall Street has tried to root out banks with similar traits, such as lots of depositors with more than the $250,000 limit that’s insured by the Federal Deposit Insurance Corp., or lots of tech startups and other highly connected people that can spread worries about a bank’s strength quickly.

    First Republic Bank has been at the center of the market’s swivels, and it fell 28.3%. It’s down nearly 73% this week alone.

    But big banks including JPMorgan Chase and Morgan Stanley are discussing a potential deal that could mean a big infusion of cash for the bank, according to a report from The Wall Street Journal.

    Financial stocks across the S&P 500 flipped from losses in the morning to gains by midday. Treasury yields also strengthened suddenly, a sign of increased confidence from the bond market.

    Across the Atlantic, European stocks rose after the European Central Bank announced a hefty increase to interest rates. They were also stabilizing after dropping sharply Wednesday on worries about Credit Suisse. The Swiss bank has been battling troubles for years, but its plunge to a record low raised concerns just as more attention shines on the wider industry.

    Credit Suisse’s stock in Switzerland leaped 17.8% Thursday after it said it will strengthen its finances by borrowing up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.

    Treasury Secretary Janet Yellen told the Senate Finance Committee on Thursday that the nation’s banking system “remains sound” and Americans “can feel confident” about their deposits.

    Much of the damage for banks is seen as the result of the Federal Reserve’s fastest barrage of hikes to interest rates in decades. They’ve shocked the system following years of historically easy conditions in hopes of driving down painfully high inflation.

    Higher rates can tame inflation by slowing the economy, but they raise the risk of a recession later on. They also hurt prices for stocks, bonds and other investments. That latter factor was one of the issues hurting Silicon Valley Bank because high rates forced down the value of its bond investments.

    Wall Street increasingly expects banks’ struggles to push the Federal Reserve to hike interest rates next week by only a quarter of a percentage point. That would be the same sized increase as last month’s, and it would be counter to expectations from earlier this month that it could hike by 0.50 points as it had been potentially signaling.

    Some traders are also betting on the possibility the Fed could take a pause on rate hikes next week. just

    The European Central Bank on Thursday raised its key interest rate by half a percentage point, brushing aside speculation that it may reduce the size because of all the turmoil around banks.

    Some of Wall Street’s wildest action this week has been in the bond market, as traders rush to guess where the Fed is heading.

    The yield on the 10-year Treasury fell to 3.44% from 3.47% late Wednesday. It was above 4% earlier this month, and it helps set rates for mortgages and other important loans.

    All the stress in the banking system is raising worries about a potential recession because of how important smaller and mid-sized banks are to making loans to businesses across the country. Oil prices have slid this week on such fears.

    Economists at Goldman Sachs said all the near-term uncertainty surrounding small banks mean they see a 35% probability of a recession in the next 12 months. That’s up from their prior forecast of 25%.

    Reports on the U.S. economy, meanwhile, continue to show mixed signals.

    The job market looks remarkably solid, and a report said fewer workers applied for unemployment benefits last week than expected. .

    But other pockets of the economy are continuing to show weakness. Manufacturing has struggled, for example, and a measure of activity in the mid-Atlantic region weakened by more than expected.

    The housing market has also been struggling under the weight of higher mortgage rates, though homebuilders broke ground on more projects last month than expected. That could be a signal the industry is finding some stability.

    ___

    AP Business Writers Joe McDonald and Matt Ott contributed.

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  • In low-wage Portugal, Europe’s housing crisis bites deep

    In low-wage Portugal, Europe’s housing crisis bites deep

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    LISBON, Portugal — Like a growing number of people in Portugal, Georgina Simoes no longer earns enough money to afford a place to live.

    The 57-year-old nursing home carer earns less than 800 euros ($845) a month, as do about a fourth of the country’s workforce. For the last decade, she got by because she’s been paying just 300 euros a month for her one-bedroom apartment in an undistinguished Lisbon neighborhood.

    Now, with rents soaring in the capital, her landlord is evicting her. She says she’s not budging because finding another place near work will be too expensive.

    “You live in this state of anxiety,” she says in her apartment with its partial view of the River Tagus. “Every day you wake up thinking, ‘Am I staying here or do I have to leave?”

    Simoes and many others, increasingly including the middle class, are being priced out of Portugal’s property market by rising rents, surging home prices and climbing mortgage rates, fueled by factors including the growing influx of foreign investors and tourists seeking short-term rentals. Deepening fears in recent days about the health of financial institutions, as well as the prospect of continuing high inflation, have added more uncertainty.

    Portugal’s center-left Socialist government last month unveiled a package of measures to address the problem, and some of them are set to be approved by the Cabinet on Thursday.

    Between 2020 and 2021, house prices in Portugal shot up by 157%. From 2015 to 2021, rents jumped by 112%, according the European Union’s statistics agency Eurostat.

    But the rising cost of real estate tells only part of the story.

    Portugal is one of Western Europe’s poorest countries and has long pursued investment on the back of a low-wage economy. Just over half of Portuguese workers earned less than 1,000 euros ($1,054) a month last year, according to Labor Ministry statistics.

    Across the EU, the recent spike in inflation, especially rising food and energy prices, and the lingering economic and labor consequences of the COVID-19 pandemic have aggravated the housing dilemma in the 27-nation bloc.

    More than 82 million households in the EU have difficulty paying their rent, 17% of people live in overcrowded accommodations and just over 10% spend more than 40% of their income on rent, the the bloc says.

    Hit hardest by unequal access to decent, affordable housing are young people, families with children, the elderly, those with disabilities and migrants.

    In Portugal, the problem has been magnified by tourism, whose robust growth before the pandemic has come roaring back, as well as an influx of foreign investors who found relatively low real estate prices in Lisbon and have been driving up prices that force local people out of their neighborhoods.

    After attracting a record 25 million foreign tourists in 2019, Portugal drew 15.3 million last year — a 158% rise after the previous year of pandemic restrictions. Analysts expect a 33% rise this year.

    For some people, that long-awaited national success with foreign vacationers is a case of being careful what you wish for.

    Rosa Santos, a 59-year-old born and raised close to Lisbon’s 14th-century St. George’s Castle overlooking the port city, says most homes in her neighborhood are occupied by short-term vacation rentals, largely for foreign tourists. It’s common to see and hear visitors dragging suitcases over the cobblestones.

    The locals’ rich traditions are gone, and there’s not even a bakery or grocery store there now, Santos says.

    “It’s not a neighborhood anymore,” she said. “This isn’t a city, it’s an amusement park.”

    Activists are fighting back against the trend that is robbing the capital of its charm. Santos is part of a growing movement that is calling for a referendum to stop short-term vacation rentals in Lisbon. They gather every weekend in one of the city’s neighborhoods to collect signatures supporting their goal. They need at least 5,000 signatures to start the referendum process at city hall.

    On a recent rainy day, police helped municipal workers using backhoes demolish several illegal makeshift dwellings on Lisbon’s outskirts with no power or running water. The families forced by necessity to live in them pleaded for them to stop.

    The shacks stood just a few kilometers (miles) from luxury condominiums being built on the Lisbon waterfront, where a four-bedroom apartment sells for 2.4 million euros.

    Not far away, in the Camarate low-income district close to Lisbon airport, missionary worker Jose Manuel helps needy families, some of whom can’t afford to pay for a room, let alone a house, and are consequently being pushed out of the city.

    “We are talking already of a room in Camarate for 400 euros, a house for 600 or 700 euros,” he said. “Those who are on a minimum wage cannot afford a house.”

    Grassroot housing rights groups have sprung up and are helping people struggling to keep a roof over their head. One of them, Habita, is pushing authorities to stop encouraging premium developments that are by, and for, wealthy foreigners.

    For Habita’s Rita Silva, the government must also introduce tighter rents controls and “stop evictions if there are no suitable housing alternatives.”

    Prime Minister Antonio Costa says cities that lose their inhabitants forfeit their “authenticity” and become “a Disneyland” for tourists.

    Among the measures that his government hopes will bring about a market correction:

    — Forcing the owners of unoccupied properties to rent them out, granting priority to renters under 35, single-parent families or families whose income has dropped by more than 20%.

    — Capping increases in new rental contracts to 2% above the previous contract.

    — Ending the government’s “golden visa” program, which grants residence permits to wealthy foreign investors who buy property in Portugal.

    — Halting new licenses, except in rural areas, for short-term vacation rentals through tourist accommodation platforms.

    — Switching commercial property to housing use.

    The proposals have stirred controversy: Some see them as heavy-handed and misguided, others say they lack detail on how they will work. And some are angry.

    Hugo Ferreira Santos of the Portuguese Association of Real Estate Developers and Investors said foreign investment has ground to a halt as people wait to see how the golden visa changes shape up.

    “What I have been hearing from international investors is that Portugal is not a credible country,” he said. “It is a country that changes the rules of the game halfway through and a country where foreign investment is not welcome.”

    Small-time investors in apartments for short-term vacation rentals also are aggrieved.

    “There are people that left their lives, set up their own businesses, generated jobs, have workers and suddenly one day they are knocked down without any prospect,” said Eduardo Miranda, head of a Portuguese association representing their interests.

    Some measures will require parliament’s approval, and others could be sent to the Constitutional Court for vetting.

    ___

    This story has been corrected to show that at least 5,000 signatures are needed for a referendum, not 7,500.

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  • Credit Suisse shares sink as global fears about banks grow

    Credit Suisse shares sink as global fears about banks grow

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    GENEVA — Battered shares of Credit Suisse lost more than one-quarter of their value Wednesday, hitting a record low after its biggest shareholder — the Saudi National Bank — told news outlets that it would not inject more money into the Swiss bank beset by problems long before the failure of two U.S. lenders.

    The turmoil prompted an automatic pause in trading of Credit Suisse’s shares on the Swiss market and sent shares of other European banks plunging by as much as double digits. That fanned new fears about the health of financial institutions following the collapse of Silicon Valley Bank and Signature Bank in the United States in recent days.

    Credit Suisse stock dropped more than 27%, to about 1.6 Swiss francs ($1.73), in mid-afternoon trading on the SIX stock exchange Wednesday. That’s down more than 85% from February 2021. The shares have suffered a long, sustained decline: In 2007, they were trading at more than 80 francs each.

    With concerns about the possibility of more hidden trouble in the banking system, investors were quick to sell bank stocks on bad news.

    Other European banks took a battering as concerns spread about the sector: France’s Societe Generale SA dropped 12%, France’s BNP Paribas fell more than 10%, Germany’s Deutsche Bank was down 8% and Britain’s Barclays Bank was down nearly 8%. Shares in the two French banks also were briefly suspended.

    The STOXX Banks index of 21 leading European lenders sagged 8.4% following relative calm in the markets Tuesday.

    The tumble came after Saudi National Bank Chairman Ammar Al Khudairy told Bloomberg and Reuters that the key Credit Suisse shareholder has ruled out further investments in the Swiss bank to avoid regulations that kick in with a stake above 10%.

    Following an announcement in October, Saudi National Bank put in some 1.5 billion Swiss francs to acquire a holding in Credit Suisse of just under 10%.

    The Swiss bank was pushing to raise funding from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving Zurich rival UBS.

    Speaking Wednesday at a financial conference in the Saudi capital of Riyadh, Credit Suisse Chairman Axel Lehmann defended his bank when asked about management issues, saying, “We already took the medicine” to reduce risks.

    When asked if he would rule out government assistance in the future, he said “that’s not a topic. … We are regulated, we have strong capital ratios, very strong balance sheet, we are all hands on deck, so that’s not a topic whatsoever.”

    A day earlier, Credit Suisse reported that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year. That fanned new doubts about the bank’s ability to weather the recent storm.

    With global concern rising about banks, European finance ministers said this week that their banking system has no direct exposure to the U.S. bank failures.

    Analysts say Europe has strengthened safeguards around its banking system since the global financial crisis that followed the collapse of U.S. investment bank Lehman Brothers in 2008.

    Andrew Kenningham, chief Europe economist for Capital Economics, described Credit Suisse as “a much bigger concern for the global economy” than the midsized U.S. banks that collapsed.

    He noted, however, that the Swiss bank’s “problems were well known so do not come as a complete shock to either investors or policymakers.”

    “The problems in Credit Suisse once more raise the question whether this is the beginning of a global crisis or just another ‘idiosyncratic’ case,” Kenningham said in a research note. ”Credit Suisse was widely seen as the weakest link among Europe’s large banks, but it is not the only bank which has struggled with weak profitability in recent years.”

    ___

    Associated Press writers Joseph Krauss in Ottawa, Ontario, David McHugh in Frankfurt, Germany, and Angela Charlton in Paris contributed to this report.

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  • Despite market slump, high rates dim homebuyer affordability

    Despite market slump, high rates dim homebuyer affordability

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    LOS ANGELES — Homeownership is likely to remain a pipe dream for many Americans this spring homebuying season.

    The nation’s worst housing slump in nearly a decade stoked hope among prospective buyers that homes could be scooped up more easily. But while prices appear to have peaked last summer, they still ended 2022 higher than they were at the end of 2021. And the median U.S. home price has increased 42% since 2019.

    A series of interest rate increases by the Federal Reserve last year is making matters worse for homebuyers, pushing mortgage rates to their highest level in two decades.

    The average long-term rate on a 30-year mortgage reached a two-decade high of 7.08% in the fall. Rates eased in December and January, but have been climbing since early February. The average rate hit 6.73% last week, the highest level since early November. A year ago, it averaged 3.85%.

    That rate translates into a roughly 49% increase in the monthly payment on a median-priced U.S. home than a year ago, said George Ratiu, senior economist at Realtor.com.

    “For real estate markets, the rise in rates means higher mortgage payments, deepening the affordability challenge just as we move into the crucial spring homebuying season,” he said.

    For prospective buyers holding out for a meaningful dip in mortgage rates, they may be in for a long wait. Zillow recently polled 100 economists and real estate experts on their outlook for what the average rate on a 30-year mortgage will be by the end of this year and the median forecast was 6%.

    Stronger-than-expected reports on the economy this year have fueled expectations that the Federal Reserve may have to keep pushing up its key borrowing rate to tame inflation, deepening the affordability challenge for would-be buyers like Joe Arndt in Reiserstown, Maryland.

    The 28-year-old athletic trainer has been looking to buy a home in the Baltimore area for over a year, but hasn’t found much he can afford within his $225,000-$250,000 price range. He now feels shut out of the market.

    “I thought that things would start to cool down a little bit more,” Ardnt said. “Prices are still the same as they were a year ago, if not a little higher.”

    Another factor that may keep people out of the housing market is the fact that the amount of money a typical homebuyer needs to earn in order to afford a house continues to climb. In the fourth quarter of last year, you had to make at least $80,142 a year to buy a home at the national median price of $325,000, according to an analysis by Attom, a real estate information company. That’s a nearly 36% increase from the same quarter in 2021.

    The analysis, which was based on data from 581 counties, defines an affordable home purchase as a transaction that includes a 20% down payment and monthly costs for the mortgage payment, property taxes and insurance that don’t exceed 28% of the buyer’s annual income.

    One market shift that could help make homes more affordable is a significant increase in homes for sale. Nationally, there are more available now than a year ago, and that’s likely to increase in coming weeks as traditionally more homes hit the market in the spring months.

    The number of homes for sale rose for the first time in five months in January to 980,000, up 15.3% from a year earlier, according to the National Association of Realtors. That amounts to a 2.9-month supply at the current sales pace — better than in January last year.

    But it’s still far from the 5- to 6-month supply that reflects a more balanced market between buyers and sellers. And the prospects for a bigger spike in supply are slim, given that new construction hasn’t kept up pace with demand after years of underbuilding following the housing crash in 2008. At the same time, most homeowners with a mortgage have locked in ultra-low rates over the years and have less financial incentive to sell.

    It’s not all bad news for buyers. The bidding wars that led to homes often selling for well above asking prices a year ago are less common as higher mortgage rates have forced some buyers out of the market. And data show sellers are more willing to lower their asking price than they were a year ago.

    Sobhit Haribhakti, 29, and his fiancée Sierra McNeilly, 26, were worried higher borrowing costs would hamper their bid to become homeowners. But the couple, who live in the Cleveland suburb of Strongsville, were able to find a house they could afford.

    The couple got a two-bedroom, two-and-a-half-bathroom house for around $230,000, or $15,000 below asking price, and financed the purchase with a 30-year mortgage with a fixed rate of 5.75%. The seller also kicked in $10,000 toward their closing costs.

    “We’re definitely going to refinance at some point,” Haribhakti said. “But it seems like the way it worked out we got a pretty good amount of seller concessions.”

    Buyers like Haribhakti and McNeilly who can make the homebuying math work have some trends in their favor. For one, homes are taking longer to sell. On average, homes sold in 33 days of hitting the market in January, up from 19 days a year earlier, according to the National Association of Realtors.

    That’s pushing some sellers to lower prices. In January, about 190,000 homes on the market had their price reduced, a nearly threefold increase from a year earlier, according to Realtor.com.

    Many buyers are also increasingly opting for a mortgage rate buydown, which lowers the rate on their home loan for a few years or for the life of the loan and thus reduces the homebuyer’s overall borrowing costs. In exchange, buyers pay fees as part of their closing costs to cover the rate buydown.

    Some sellers are even offering to cover those closing costs for a buyer to get the deal done.

    Scott Collett, an account manager in Tampa, Florida, recently negotiated a seller-paid mortgage rate buydown to close the deal on a four-bedroom, two-bathroom house with a pool. The property, which had been on the market for nearly a year, was reduced from $495,000 to $419,000.

    “I basically offered what they were asking at that point in time, as they paid all the closing costs and inspection fees and everything,” said Collett, 49.

    The rate on his 30-year loan dropped from 6.25% to 5.26%, an improvement, but still higher than a year ago when rates averaged below 4%.

    For Collett, it was worth it.

    “My thought was that if I had a higher interest rate, I’d pay less for the house, but I could also refinance,” he said.

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  • Fed criticized for missing red flags before bank collapse

    Fed criticized for missing red flags before bank collapse

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    WASHINGTON — The Federal Reserve is facing stinging criticism for missing what observers say were clear signs that Silicon Valley Bank was at high risk of collapsing into the second-largest bank failure in U.S. history.

    Critics point to many red flags surrounding the bank, including its rapid growth since the pandemic, its unusually high level of uninsured deposits and its many investments in long-term government bonds and mortgage-backed securities, which tumbled in value as interest rates rose.

    “It’s inexplicable how the Federal Reserve supervisors could not see this clear threat to the safety and soundness of banks and to financial stability,” said Dennis Kelleher, chief executive of Better Markets, an advocacy group.

    Wall Street traders and industry analysts “have been publicly screaming about these very issues for many, many months going back to last fall,” Kelleher added.

    The Fed was the primary federal supervisor of the bank based in Santa Clara, California, that failed last week. The bank was also overseen by the California Department of Financial Protection and Innovation.

    Now the consequences of the fall of Silicon Valley Bank, along with New York-based Signature Bank, which failed over the weekend, are complicating the Fed’s upcoming decisions about how high to raise its benchmark interest rate in the fight against chronically high inflation.

    Many economists say the central bank would likely have raised rates by an aggressive half-point next week at its meeting, which would amount to a step up in its inflation fight, after the Fed implemented a quarter-point hike in February. Its rate currently stands at about 4.6%, the highest level in 15 years.

    Last week, many economists suggested that Fed policymakers would raise their projection for future rates next week to 5.6%. Now it’s suddenly unclear how many additional rate increases the Fed will forecast.

    With the collapse of the two large banks fueling anxiety about other regional banks, the Fed may focus more on boosting confidence in the financial system than on its long-term drive to tame inflation.

    The latest government report on inflation, released Tuesday, shows that price increases remain far higher than the Fed prefers, putting Chair Jerome Powell in a tougher spot. Core prices, which exclude volatile food and energy costs and are seen as a better gauge of longer-run inflation, jumped 0.5% from January to February — the most since September. That is far higher than is consistent with the Fed’s 2% annual target.

    “Absent the fallout from the bank failure, it may have been a close call, but I think it would have tipped them towards a half-point (rate hike) at this meeting,” said Kathy Bostjancic, chief economist at Nationwide.

    On Monday, Powell announced that the Fed would review its supervision of Silicon Valley to understand how it might have better managed its regulation of the bank. The review will be conducted by Michael Barr, the Fed vice chair who oversees bank oversight, and will be publicly released May 1.

    A Federal Reserve spokesperson declined to comment further.

    Elizabeth Smith, a spokeswoman for the California Department of Financial Protection and Innovation, said, “We are actively investigating the situation and conducting a thorough review to ensure the Department is doing everything we can to protect Californians.”

    By all accounts, Silicon Valley was an unusual bank. Its management took excessive risks by buying billions of dollars of mortgage-backed securities and Treasury bonds when interest rates were low. As the Fed continually raised interest rates to fight inflation, leading to higher rates on Treasurys, the value of Silicon Valley Bank’s bonds steadily lost value.

    Most banks would have sought to make other investments to offset that risk. The Fed could have also forced the bank to raise additional capital.

    The bank had grown rapidly. Its assets quadrupled in five years to $209 billion, making it the 16th-largest bank in the country. And roughly 94% of its deposits were uninsured because they exceeded the Federal Deposit Insurance Corporation’s $250,000 insurance cap.

    That percentage was the second highest among banks with more than $50 billion in assets, according to ratings agency S&P. Signature had the fourth-highest percentage of uninsured deposits.

    Such an unusually high proportion made Silicon Valley Bank highly susceptible to the risk that depositors would quickly withdraw their money at the first sign of trouble — a classic bank run — which is exactly what happened.

    “I’m at a loss for words to understand how this business model was deemed acceptable by their regulators,” said Aaron Klein, a former congressional aide, now at the Brookings Institution, who worked on the Dodd-Frank banking regulation law that was passed after the 2008 financial crisis.

    The bank failures will likely color an upcoming Fed review of rules that set out how much money large banks must hold in reserve. Barr said last year that he wanted to conduct a “holistic” review of those requirements, raising concerns in the banking industry that the review would lead to rules forcing banks to hold more reserves, which would limit their ability to lend.

    Many critics also point to a 2018 law as softening bank regulations in ways that contributed to Silicon Valley’s failure. Pushed by the Trump administration with bipartisan support in Congress, the law exempted banks with $100 billion to $250 billion in assets — Silicon Valley’s size — from requirements that included regular examinations of how they would fare in tough economic times, known as “stress tests.”

    Silicon Valley’s CEO, Greg Becker, had lobbied Congress in support of the rollback in regulations, and he served on the board of the Federal Reserve Bank of San Francisco until the day of the collapse.

    Sen. Elizabeth Warren, a Democrat from Massachusetts, asked him him about his lobbying in a letter released Tuesday.

    “These rules were designed to safeguard our banking system and economy from the negligence of bank executives like yourself — and their rollback, along with atrocious risk management policies at your bank, have been implicated as chief causes of its failure,” Warren’s letter said.

    The 2018 law also provided the Fed with more discretion in its bank oversight. The central bank subsequently voted to further reduce regulation for banks the size of Silicon Valley.

    In October 2019, the Fed voted to effectively reduce the capital those banks had to hold in reserve.

    Kelleher said the Fed still could have pushed Silicon Valley Bank to take steps to protect itself.

    “Nothing in that law prevented in any way the Federal Reserve supervisors from doing their job,” Kelleher said.

    ___

    AP Economics Writer Paul Wiseman contributed to this report.

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  • ‘Big Short’ trader Danny Moses warns Silicon Valley Bank collapse will expose more trouble

    ‘Big Short’ trader Danny Moses warns Silicon Valley Bank collapse will expose more trouble

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  • Asian shares extend losses as US banking worries persist

    Asian shares extend losses as US banking worries persist

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    TOKYO — Asian shares declined Tuesday, with heavy selling of banks shares in Tokyo and some other markets, as investors around the world watched to see what’s next following the second- and third-largest bank failures in U.S. history.

    Direct exposure to the risks from the U.S. failures in Asia seemed slim, at least so far. Still, fears of contagion persisted, sending regional benchmarks lower across the region.

    Japan’s benchmark Nikkei 225 dropped 2.2% to finish at 27,222.04, extending losses from the day before.

    Bank shares plunged. MUFG fell 8.6%, Mizuho Financial Group sank 7.1% and Sumitomo Mitsui Financial Group’s shares dropped 9.8%. Tech sector companies also were sold, with SoftBank shares losing 4.1% and Sony Group down 2.8%.

    Banks in South Korea and Australia also declined.

    Australia’s S&P/ASX 200 dipped 1.4% to 7,008.90. South Korea’s Kospi fell 2.6% to 2,349.19. Hong Kong’s Hang Seng fell 2.4% to 19,233.51. The Shanghai Composite declined 0.6% to 3,247.81.

    “There is escalating tension in the global financial world; this is despite non-U.S. banks’ exposure to US regional banks being minimal, with the global systems being well capitalized and flush with liquidity,” Stephen Innes, managing partner at SPI Asset Management, said in a report.

    “U.S. financial stress could lead banks of all stripes to retrench lending to the real economy and tighten broader financial conditions, amplifying risk to the broader markets.”

    On Monday, Japan’s chief government spokesman, Hirokazu Matsuno, told reporters that the impact on Japanese banks would likely be limited. Finance Minister Shunichi Suzuki, echoed similar sentiments Tuesday, stressing that Japan’s fiscal system remained stable, stressing the “low likelihood” of any negative effects.

    The biggest price declines so far on Wall Street have also been with banks. On Monday, other stocks rose on hopes the bloodletting will force the U.S. Federal Reserve to take it easier on the hikes to interest rates that are shaking Wall Street and the economy.

    Investors are worried that a relentless rise in interest rates meant to get inflation under control are approaching a tipping point and may be cracking the banking system.

    On Wall Street, the S&P 500 dipped 0.2% to 3,855.76 after whipsaw trading, where it careened from an early loss of 1.4% to a midday gain of nearly that much. The Dow Jones Industrial Average fell 0.3% to 31,819.14, while the Nasdaq composite rose 0.4% to 11,188.84.

    The U.S. government announced a plan late Sunday meant to shore up confidence in the banking industry following the collapses of Silicon Valley Bank and Signature Bank since Friday.

    The heaviest pressure is on the regional banks a couple steps below in size of the massive, “too-big-to-fail” banks that foundered in 2007 and 2008. Shares of First Republic Bank fell 61.8%, even after the bank said Sunday it had strengthened its finances with cash from the Federal Reserve and JPMorgan Chase.

    Huge banks, which have been repeatedly stress-tested by regulators following the 2008 financial crisis, weren’t down as much. JPMorgan Chase fell 1.8%, and Bank of America dropped 5.8%.

    Some investors are calling for the Fed to make cuts to interest rates soon to stanch the bleeding. Rate cuts often act like steroids for the stock market. The wider expectation, though, is that the Fed will likely pause or at least hold off on accelerating its rate hikes at its next meeting later this month.

    That would still be a sharp turnaround from expectations just a week ago, when many traders were forecasting the Fed could go back to increasing the size of its rate hikes to tame stubbornly high inflation.

    Higher interest rates can drag down inflation by slowing the economy, but they raise the risk of a recession later on. They also hit prices for stocks, as well as bonds sitting in investors’ portfolios.

    Prices for Treasurys shot higher as investors sought safety and as their expectations grew for an easier Fed. That in turn sent their yields lower, The yield on the 10-year Treasury was steady at 3.56%, down from 3.70% late Friday. That’s a major move for the bond market.

    The two-year yield, which moves more on expectations for the Fed, fell to 3.99% from 4.59% Friday. It was above 5% earlier this month.

    In energy trading, benchmark U.S. crude lost 91 cents to $73.89 a barrel in electronic trading on the New York Mercantile Exchange. It fell $1.88 to $74.80 a barrel on Monday.

    Brent crude, the international standard, lost 89 cents to $79.88 a barrel.

    In currency trading, the U.S. dollar rose to 133.51 Japanese yen from 133.20 yen. The euro cost $1.0697, down from $1.0734.

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  • Biden insists banking system is safe after 2 bank collapses

    Biden insists banking system is safe after 2 bank collapses

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    NEW YORK — President Joe Biden insisted Monday that the nation’s banking system was safe, seeking to project calm after the collapse of two banks stirred fears of a broader upheaval and prompted regulators to offer emergency loans to banks to stave off additional failures.

    “Your deposits will be there when you need them,” Biden said.

    Despite the message from the White House, investors continued to dump shares in bank stocks. Shares of First Republic Bank plunged more than 70% even after the bank said it was accessing emergency funding from the Federal Reserve as well as additional funds from JPMorgan Chase.

    U.S. regulators closed the Silicon Valley Bank on Friday after depositors rushed to withdraw their funds all at once. It was the second largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual. New York-based Signature Bank also collapsed in the third-largest failure in the U.S.

    Speaking from the White House shortly before a trip to the West Coast, the president said he would seek to hold those responsible accountable, and he pressed for better oversight and regulation of larger banks. He promised that no losses would be borne by taxpayers.

    “We must get the full accounting of what happened,” he said. “Americans can have confidence that the banking system is safe.”

    Biden also said the managers of the banks should be fired.

    “If the bank is taken over by the FDIC, the people running the bank should not work there anymore,” he said, referring to the Federal Deposit Insurance Corp., the agency responsible for ensuring the stability of the banking system.

    Michele Barry, a teacher who was at Silicon Valley Bank on Monday, said members of the FDIC and bank employees were available to answer questions.

    Barry, who also runs an after-school program for children, wanted to make sure that her four employees would be paid. She was told that all checks from Friday would be honored, along with her automatic payments.

    Barry left enough in her account to cover the payments, but she transferred the bulk of her money over to another bank. She said Biden’s reassurance was helpful.

    “I’m from South Africa. Chances are if this happened in South Africa, nobody would insure your money,” she said.

    International regulators also had to step in to ease investor fears. The Bank of England and U.K. Treasury said they had facilitated the sale of a Silicon Valley Bank subsidiary in London to HSBC, Europe’s biggest bank. The deal protected 6.7 billion pounds ($8.1 billion) of deposits.

    Under the plan announced by U.S. regulators, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money on Monday. Under a new Fed program, banks can post those securities as collateral and borrow from the emergency facility.

    The Treasury has set aside $25 billion to offset any losses incurred. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.

    New York bank regulators took possession of Signature Bank on Sunday, ousting its leaders and handing day-to-day control over to the FDIC as part of a move in which the federal government agreed to guarantee full deposits — even those over the $250,000 threshold.

    New York Gov. Kathy Hochul described the decision by the state Department of Financial Services as aimed at holding off a bigger crisis involving more banks.

    “Our view was to make sure that the entire banking community here in New York was stable, that we can project calm,” Hochul said in a news conference Monday.

    She said a high volume of withdrawals that began last week continued with online transactions through the weekend. The bank was open Monday under the name of Signature Bridge Bank.

    Signature, which was founded more than two decades ago, has about 40 offices across the country and says it focuses on banking for privately owned businesses, their owners and senior managers.

    Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, the actions were relatively limited compared with 15 years ago.

    The two failed banks themselves have not been rescued, and taxpayer money has not been provided to them.

    Some prominent Silicon Valley executives feared that if Washington did not rescue their failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, such as First Republic and PacWest Bank.

    Among the bank’s customers are a range of companies, including many California wineries that rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.

    Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching platform and community for women, had her money tied up at Silicon Valley Bank.

    She said in video on LinkedIn that she had to pay employees out of her personal account. With two teenagers to support who will be heading to college, she said she was relieved to hear that the government intends to make depositors whole.

    “Small businesses and early stage startups don’t have a lot of access to leverage in a situation like this, and we’re often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder,” Dufu said.

    ___ Rugaber and Megerian reported from Washington. Sweet and Bussewitz reported from New York. Associated Press writers Hope Yen in Washington; Michelle Chapman in New York; Jennifer McDermott in Providence, Rhode Island; Geoff Mulvihill in Cherry Hill, New Jersey; and Danica Kirka in London contributed to this report.

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  • US, UK try to stem fallout from Silicon Valley Bank collapse

    US, UK try to stem fallout from Silicon Valley Bank collapse

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    NEW YORK — Governments in the UK and U.S. took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank was shut down.

    The UK Treasury and the Bank of England announced early Monday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s biggest bank, ensuring the security of 6.7 billion pounds ($8.1 billion) of deposits.

    British officials worked throughout the weekend to find a buyer for the UK subsidiary of the California-based bank. Its collapse was the second-largest bank failure in history.

    U.S. regulators also worked all weekend to try to find a buyer. Those efforts appeared to have failed Sunday, but U.S. officials assured all depositors that they could access all their money quickly.

    The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.

    In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

    The near-financial crisis left Asian markets jittery as trading began Monday. Japan’s benchmark Nikkei 225 sank 1.6% in morning trading, Australia’s S&P/ASX 200 lost 0.3% and South Korea’s Kospi shed 0.4%. But Hong Kong’s Hang Seng rose 1.4% and the Shanghai Composite increased 0.3%.

    In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank’s customers and prevent additional bank runs.

    “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.

    Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money on Monday.

    Also Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Fed and JPMorgan Chase.

    In a separate announcement, the Fed late Sunday announced an expansive emergency lending program that’s intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. Fed officials characterized the program as akin to what central banks have done for decades: Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed.

    The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at at a loss to fund its customers’ withdrawals. Under the Fed’s new program, banks can post those securities as collateral and borrow from the emergency facility.

    The Treasury has set aside $25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.

    Analysts said the Fed’s program should be enough to calm financial markets.

    “Monday will surely be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” economists at Jefferies, an investment bank, said in a research note.

    Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, its actions are relatively limited compared with what was done 15 years ago. The two failed banks themselves have not been rescued, and taxpayer money has not been provided to the banks.

    President Joe Biden said Sunday evening as he boarded Air Force One back to Washington that he would speak about the bank situation on Monday. In a statement, Biden also said he was “firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”

    Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

    Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.

    Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change. Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley. Stitchfix, the clothing retail website, disclosed recently that it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.

    Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching platform and community for women, posted a video Sunday on LinkedIn from an airport bathroom, saying the bank crisis was testing her resiliency. Given that her money was tied up at Silicon Valley Bank, she had to pay her employees out of her personal bank account. With two teenagers to support who will be heading to college, she said she was relieved to hear that the government’s intent is to make depositors whole.

    “Small businesses and early-stage startups don’t have a lot of access to leverage in a situation like this, and we’re often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder,” Dufu told The Associated Press.

    Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.

    Treasury Secretary Janet Yellen pointed to rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.

    Sheila Bair, who was chairwoman of the FDIC during the 2008 financial crisis, recalled that with nearly all the bank failures then, “we sold a failed bank to a healthy bank. And usually, the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally, that’s the best outcome.”

    But with Silicon Valley Bank, she told NBC’s “Meet the Press,” “this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now, and playing catch-up.”

    ___

    Rugaber and Megerian reported from Washington. Sweet and Bussewitz reported from New York.

    Associated Press Writers Hope Yen in Washington, Jennifer McDermott in Providence, Rhode Island, and Danica Kirka in London contributed to this report.

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  • US government moves to stop potential banking crisis

    US government moves to stop potential banking crisis

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    NEW YORK — The U.S. government took extraordinary steps Sunday to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring depositors at the failed financial institution that they would be able to access all of their money quickly.

    The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread, and only hours before trading began in Asia. Regulators had worked all weekend to try and come up with a buyer for the bank, which was the second largest bank failure in history. Those efforts appeared to have failed as of Sunday.

    In a sign of quickly the financial bleeding was occurring, regulators announced that New York-based Signature Bank had failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

    The Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients will be protected and have access to their funds and announced steps designed to protect the bank’s customers and prevent more bank runs.

    “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.

    Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

    Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.

    Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.

    Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley Bank as of Friday and expects to have more information on expected recovery in the coming week, the company said in a statement.

    Stitchfix, the popular clothing retail website, disclosed in a recent quarterly report that it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.

    Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.

    Yellen described rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.

    Sheila Bair, who was chairwoman of the FDIC chair during the 2008 financial crisis, recalled that with almost all the bank failures during that time, “we sold a failed bank to a healthy bank. And usually, the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally, that’s the best outcome.”

    But with Silicon Valley Bank, she told NBC’s “Meet the Press,” “this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now, and playing catch-up.”

    ___

    Rugaber and Megerian reported from Washington. Sweet and Bussewitz reported from New York.

    Associated Press reporter Hope Yen in contributed to this report from Washington.

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  • Israel to weigh action after Silicon Valley Bank collapse

    Israel to weigh action after Silicon Valley Bank collapse

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    Israeli Prime Minister Benjamin Netanyahu says that the government will assess the Silicon Valley Bank’s collapse and determine whether or not to assist Israeli companies

    JERUSALEM — Israeli Prime Minister Benjamin Netanyahu said Sunday that the government would assess the effect of Silicon Valley Bank’s collapse on Israeli companies and determine whether or not to assist them.

    Israel is home to a vibrant high-tech industry, and local media said Sunday that hundreds of local firms could be exposed to the collapse of Silicon Valley Bank.

    Israeli business paper Globes said the bank was considered “the major funding body for Israeli companies” and that its fall was “closing the oxygen pipe” for the sector.

    Silicon Valley Bank, the U.S.’s 16th largest bank, served mostly technology workers and venture capital-backed companies. Its collapse is the biggest bank failure since the collapse of Washington Mutual in 2008.

    The bank had a branch in Tel Aviv. It was not immediately clear how many local companies did business with the bank.

    Speaking at a Cabinet meeting on Sunday, Netanyahu said he and senior Israeli officials would consider “whether or not actions are necessary to assist Israeli companies in distress, mainly with cash-flow, due to the collapse of SVB.”

    A day earlier Israel’s finance minister, Bezalel Smotrich, said he formed a team that would track the issue and assess the bank collapse’s impact on Israel’s economy.

    Israel’s banking regulator, Yair Avidan, said that Israel was “closely examining the case and following developments.”

    The bank failure came as Israeli tech leaders and economists are warning that the Netanyahu government’s proposed overhaul to the country’s judicial system could drive away investment and impact the economy.

    Israel’s currency, the shekel, has dropped in value over the past two months since the government announced its plan, in part because companies have transferred funds outside the country because of concerns about the judicial overhaul.

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  • Can the chaos from Silicon Valley Bank’s fall be contained?

    Can the chaos from Silicon Valley Bank’s fall be contained?

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    NEW YORK — Can Washington come to the rescue of the depositors of failed Silicon Valley Bank? Is it even politically possible?

    That was one of the growing questions in Washington Sunday as policymakers tried to figure out whether the U.S. government — and its taxpayers — should bail out a failed bank that largely served Silicon Valley, with all its wealth and power.

    Prominent Silicon Valley personalities and executives have been hitting the giant red “panic” button, saying that if Washington does not come to the rescue of Silicon Valley bank’s depositors, more bank runs are likely this week.

    “Either deposits in the U.S. are safe or they’re not. If not, look out below,” David Sacks of Craft Ventures, who is closely tied to billionaires Elon Musk and Peter Thiel, wrote on Twitter on Sunday.

    Silicon Valley Bank failed on Friday, as fearful depositors withdrew billions of dollars from the bank in a matter of hours, forcing U.S. banking regulators to urgently close the bank in the middle of the workday to stop the bank run. It’s the second-largest bank failure in history, behind the collapse of Washington Mutual at the height of the 2008 financial crisis.

    Silicon Valley Bank was a unique creature in the banking world. The 16th-largest bank in the country largely served technology startup companies, venture capital firms, and well-paid technology workers, as its name implies. Because of this, the vast majority of the deposits at Silicon Valley Bank were in business accounts with balances significantly above the insured $250,000 limit.

    Its failure has caused more than $150 billion in deposits to be now locked up in receivership, which means startups and other businesses may not be able to get to their money for a long time.

    Staff at the Federal Deposit Insurance Corporation — the agency that insures bank deposits under $250,000 — have worked through the weekend looking for a potential buyer for the assets of the failed bank. There have been multiple bidders for assets, but as of Sunday morning, the bank’s corpse remained in the custody of the U.S. government.

    Despite the panic from Silicon Valley, there are no signs that the bank’s failure could lead to a 2008-like crisis. The nation’s banking system is healthy, holds more capital than it has ever held in its history, and has undergone multiple stress tests that shows the overall system could withstand even a substantial economic recession.

    Further, it appears that Silicon Valley Bank’s failure appears to be a unique situation where the bank’s executives made poor business decisions by buying bonds just as the Federal Reserve was about to raise interest rates, and the bank was singularly exposed to one particular industry that has seen a severe contraction in the past year.

    Despite being a potentially unique collapse, Silicon Valley Bank’s demise hasn’t stopped investors for looking for other banks that might have similar situations. The stock of First Republic Bank, a bank that serves the wealthy and technology companies, is down nearly a third in two days. PacWest Bank, a California-based bank that caters to small to medium-sized businesses, plunged 38% on Friday.

    While being a unique situation, it was clear that a bank failure this size was causing worries. Treasury Secretary Janet Yelle,n as well as the White House, has been “watching closely” the developments; the governor of California has spoken to President Biden; and bills have now been proposed in Congress to up the FDIC insurance limit to temporarily protect depositors.

    “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” Yellen said on “Face the Nation” on Sunday.

    But Yellen made it clear in her interview that if Silicon Valley is expecting Washington to come to its rescue, it is mistaken. Asked whether a bailout was on the table, Yellen said, “We’re not going to do that again.”

    “But we are concerned about depositors, and we’re focused on trying to meet their needs,” she added.

    Sen. Mark Warner, D-Virginia, said on ABC’s “This Week” that it would be a “moral hazard” to potentially bail out Silicon Valley’s uninsured depositors. Moral hazard was a term used often during the 2008 financial crisis for why Washington shouldn’t have bailed out Lehman Brothers.

    The growing panic narrative among tech industry insiders is many businesses who stored their operating cash at Silicon Valley Bank will be unable to make payroll or pay office expenses in the coming days or weeks of those uninsured deposits are not released. However, the FDIC has said it plans to pay an unspecified “advanced dividend” — i.e. a portion of the uninsured deposits — to depositors this week and said more advances will be paid as assets are sold.

    The ideal situation is the FDIC finds a singular buyer of Silicon Valley Bank’s assets, or maybe two or three buyers. It is just as likely that the bank will be sold off piecemeal over the coming weeks.

    Todd Phillips, a consultant and former attorney at the FDIC, said he expects that uninsured depositors will likely get back 85% to 90% of their deposits if the sale of the bank’s assets is done in an orderly manner. He said it was never the intention of Congress to protect business accounts with deposit insurance — that the theory was businesses should be doing their due diligence on banks when storing their cash.

    Protecting bank accounts to include businesses would require an act of Congress, Phillips said. It’s unclear whether the banking industry would support higher insurance limits as well, since FDIC insurance is paid for by the banks through assessments and higher limits would require higher assessments.

    Philips added the best thing Washington can do is communicate that the overall banking system is safe and that uninsured depositors will get most of their money back.

    “Folks in Washington need to be forcefully countering the narrative on Twitter coming from Silicon Valley. If people realize they are going to get 80% to 90% of your deposits back, but it will take awhile, it will do a lot to stop a panic,” he said.

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  • One of Silicon Valley’s top banks fails; assets are seized

    One of Silicon Valley’s top banks fails; assets are seized

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    NEW YORK — Regulators rushed Friday to seize the assets of one of Silicon Valley’s top banks, marking the largest failure of a U.S. financial institution since the height of the financial crisis almost 15 years ago.

    Silicon Valley Bank, the nation’s 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008.

    The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.

    “This is an extinction-level event for startups,” said Garry Tan, CEO of Y Combinator, a startup incubator that launched Airbnb, DoorDash and Dropbox and has referred hundreds of entrepreneurs to the bank.

    “I literally have been hearing from hundreds of our founders asking for help on how they can get through this. They are asking, ‘Do I have to furlough my workers?’”

    There appeared to be little chance of the chaos spreading in the broader banking sector, as it did in the months leading up to the Great Recession. The biggest banks — those most likely to cause an economic meltdown — have healthy balance sheets and plenty of capital.

    Nearly half of the U.S. technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers, according to the bank’s website.

    The bank also boasted of its connections to leading tech companies such as Shopify, ZipRecruiter and one of the top venture capital firms, Andreesson Horowitz.

    Tan estimated that nearly one-third of Y Combinator’s startups will not be able to make payroll at some point in the next month if they cannot access their money.

    Internet TV provider Roku was among casualties of the bank collapse. It said in a regulatory filing Friday that about 26% of its cash — $487 million — was deposited at Silicon Valley Bank.

    Roku said its deposits with SVB were largely uninsured and it didn’t know “to what extent” it would be able to recover them.

    As part of the seizure, California bank regulators and the FDIC transferred the bank’s assets to a newly created institution — the Deposit Insurance Bank of Santa Clara. The new bank will start paying out insured deposits on Monday. Then the FDIC and California regulators plan to sell off the rest of the assets to make other depositors whole.

    There was unease in the banking sector all week, with shares tumbling by double digits. Then news of Silicon Valley Bank’s distress pushed shares of almost all financial institutions even lower Friday.

    The failure arrived with incredible speed. Some industry analysts suggested Friday that the bank was still a good company and a wise investment. Meanwhile, Silicon Valley Bank executives were trying to raise capital and find additional investors. However, trading in the bank’s shares was halted before stock market‘s opening bell due to extreme volatility.

    Shortly before noon, the FDIC moved to shutter the bank. Notably, the agency did not wait until the close of business, which is the typical approach. The FDIC could not immediately find a buyer for the bank’s assets, signaling how fast depositors cashed out.

    The White House said Treasury Secretary Janet Yellen was “watching closely.” The administration sought to reassure the public that the banking system is much healthier than during the Great Recession.

    “Our banking system is in a fundamentally different place than it was, you know, a decade ago,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms that were put in place back then really provide the kind of resilience that we’d like to see.”

    In 2007, the biggest financial crisis since the Great Depression rippled across the globe after mortgage-backed securities tied to ill-advised housing loans collapsed in value. The panic on Wall Street led to the demise of Lehman Brothers, a firm founded in 1847. Because major banks had extensive exposure to one another, the crisis led to a cascading breakdown in the global financial system, putting millions out of work.

    At the time of its failure, Silicon Valley Bank, which is based in Santa Clara, California, had $209 billion in total assets, the FDIC said. It was unclear how many of its deposits were above the $250,000 insurance limit, but previous regulatory reports showed that lots of accounts exceeded that amount.

    The bank announced plans Thursday to raise up to $1.75 billion in order to strengthen its capital position. That sent investors scurrying and shares plunged 60%. They tumbled lower still Friday before the opening of the Nasdaq, where the bank’s shares were traded.

    As its name implied, Silicon Valley Bank was a major financial conduit between the technology sector, startups and tech workers. It was seen as good business sense to develop a relationship with the bank if a startup founder wanted to find new investors or go public.

    Conceived in 1983 by co-founders Bill Biggerstaff and Robert Medearis during a poker game, the bank leveraged its Silicon Valley roots to become a financial cornerstone in the tech industry.

    Bill Tyler, the CEO of TWG Supply in Grapevine, Texas, said he first realized something was wrong when his employees texted him at 6:30 a.m. Friday to complain that they did not receive their paychecks.

    TWG, which has just 18 employees, had already sent the money for the checks to a payroll services provider that used Silicon Valley Bank. Tyler was scrambling to figure out how to pay his workers.

    “We’re waiting on roughly $27,000,” he said. “It’s already not a timely payment. It’s already an uncomfortable position. I don’t want to ask any employees, to say, ‘Hey, can you wait until mid-next week to get paid?’”

    Silicon Valley Bank’s ties to the tech sector added to its troubles. Technology stocks have been hit hard in the past 18 months after a growth surge during the pandemic, and layoffs have spread throughout the industry. Venture capital funding has also been declining.

    At the same time, the bank was hit hard by the Federal Reserve’s fight against inflation and an aggressive series of interest rate hikes to cool the economy.

    As the Fed raises its benchmark interest rate, the value of generally stable bonds starts to fall. That is not typically a problem, but when depositors grow anxious and begin withdrawing their money, banks sometimes have to sell those bonds before they mature to cover the exodus.

    That is exactly what happened to Silicon Valley Bank, which had to sell $21 billion in highly liquid assets to cover the sudden withdrawals. It took a $1.8 billion loss on that sale.

    Ashley Tyrner, CEO of FarmboxRx, said she had spoken to several friends whose businesses are backed by venture capital. She described them as being “beside themselves” over the bank’s failure. Tyrner’s chief operating officer tried to withdraw her company’s funds on Thursday but failed to do so in time.

    “One friend said they couldn’t make payroll today and cried when they had to inform 200 employees because of this issue,” Tyrner said.

    ___

    Associated Press Writers Michael Liedtke, Cora Lewis and Matt O’Brien, Frank Bajak and Barbara Ortutay contributed to this story.

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  • Oregon closer to magic mushroom therapy, but has setback

    Oregon closer to magic mushroom therapy, but has setback

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    SALEM, Ore. — Oregon was taking a major step Friday in its pioneering of legalized psilocybin therapy with the graduation of the first students trained in accompanying patients tripping on psychedelic mushrooms, although a company’s bankruptcy has left another group on the same path adrift.

    The graduation ceremony for 35 students was being held Friday evening by InnerTrek, a Portland firm, at a woodsy retreat center. About 70 more will graduate on Saturday and Sunday in ceremonies in which they will pledge to do no harm.

    “Facilitator training is at the heart of the nation’s first statewide psilocybin therapy and wellness program and is core to the success of the Oregon model we’re pioneering here,” said Tom Eckert, program director at InnerTrek and architect of the 2020 ballot measure that legalized Oregon’s program.

    The students must pass a final exam to receive InnerTrek certificates. They then take a test administered by the Oregon Health Authority to receive their facilitator licenses.

    “The graduation of the first cohort of students from approved psilocybin facilitator training programs is a significant milestone for Oregon,” said Angie Allbee, manager of the state health authority’s psilocybin services section. “We congratulate Oregon’s future facilitators and the training programs they are graduating from on this incredible and historic moment in psilocybin history.”

    The health authority reported Friday that so far it has received 191 license and worker permit applications, including licenses for manufacturers of psilocybin and service centers where the psychedelic substance would be consumed and experienced.

    Allbee said she expects students will soon submit applications for licenses, “which will move us closer to service center doors opening in 2023.”

    Some classes in InnerTrek’s six-month, $7,900 course were held online, but others were in-person, held in a building near Portland resembling a mountain lodge.

    The students were told that a dosing session at a licensed center should include a couch or mats for clients to sit or lie on, an eye mask, comfort items like a blanket and stuffed animals, a sketch pad, pencils and a bucket for vomiting. A session typically lasts at least six hours, often with music. Trainers emphasized that the facilitators’ clients should be given the freedom to explore whatever emotions emerge during their inner journeys.

    “We’re not guiding,” trainer Gina Gratza told the students in a December training session. “Let your participants’ experiences unfold. Use words sparingly. Let participants come to their own insights and conclusions.”

    Researchers believe psilocybin changes the way the brain organizes itself, permitting users to adopt new attitudes more easily and help overcome depression, PTSD, alcoholism and other issues.

    Eckert said the graduating students will be prepared to help clients see the benefits of psilocybin.

    “I feel like it’s a big moment for our culture and country as we collectively begin to reexamine and reevaluate the nature of mental health and wellness, while bringing real healing to those in need,” he said.

    Another facilitator training effort in southern Oregon has left students upset and a lawyer in the Netherlands trying to figure out what happened.

    Synthesis Institute — a company based in the Netherlands that has over 200 students in Oregon, according to an article in Psychedelic Alpha — was declared bankrupt Tuesday, Dutch court documents showed. The company’s website, which as of Friday had not been taken down, shows tuition being $12,997. The students are trying to get refunds.

    “Synthesis really just has ripped the rug out from under us, for a lot of people,” one of the students, Cori Sue Morris, told Psychedelic Alpha.

    Roos Suurmond, a lawyer in Amsterdam specializing in insolvency law, confirmed she has been appointed as a trustee to deal with the bankruptcy. She said in an interview she could not yet answer questions on the bankruptcy as she had so recently been appointed and still must investigate.

    By February, the company’s liabilities totaled around $850,000, and it could not afford to pay its employees in the U.S. and the Netherlands, Psychedelic Alpha reported.

    A real estate purchase in southern Oregon did not help matters.

    An Oregon limited liability company, Oregon Retreat Centers LLC, was formed by Synthesis co-founder Myles Katz, Psychedelic Alpha reported. It purchased a 124-acre rustic retreat near Ashland, Oregon, in Jackson County for $3.6 million and planned to turn the site into a psilocybin service center, but a zoning problem developed.

    While Oregon voters approved the measure on psilocybin in 2020, it did not make the drug legal until Jan. 1, 2023. The psilocybin sessions are expected to be available to the public in mid- or late-2023.

    In November, Colorado voters also passed a ballot measure allowing regulated use of “magic mushrooms” starting in 2024.

    ___

    Corder reported from The Hague, Netherlands.

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  • One of Silicon Valley’s top banks fails; assets are seized

    One of Silicon Valley’s top banks fails; assets are seized

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    NEW YORK — Regulators rushed Friday to seize the assets of one of Silicon Valley’s top banks, marking the largest failure of a U.S. financial institution since the height of the financial crisis almost 15 years ago.

    Silicon Valley Bank, the nation’s 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008.

    The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.

    “This is an extinction-level event for startups,” said Garry Tan, CEO of Y Combinator, a startup incubator that launched Airbnb, DoorDash and Dropbox and has referred hundreds of entrepreneurs to the bank.

    “I literally have been hearing from hundreds of our founders asking for help on how they can get through this. They are asking, ‘Do I have to furlough my workers?’”

    There appeared to be little chance of the chaos spreading in the broader banking sector, as it did in the months leading up to the Great Recession. The biggest banks — those most likely to cause an economic meltdown — have healthy balance sheets and plenty of capital.

    Nearly half of the U.S. technology and health care companies that went public last year after getting early funding from venture capital firms were Silicon Valley Bank customers, according to the bank’s website.

    The bank also boasted of its connections to leading tech companies such as Shopify, ZipRecruiter and one of the top venture capital firms, Andreesson Horowitz.

    Tan estimated that nearly one-third of Y Combinator’s startups will not be able to make payroll at some point in the next month if they cannot access their money.

    Internet TV provider Roku was among casualties of the bank collapse. It said in a regulatory filing Friday that about 26% of its cash — $487 million — was deposited at Silicon Valley Bank.

    Roku said its deposits with SVB were largely uninsured and it didn’t know “to what extent” it would be able to recover them.

    As part of the seizure, California bank regulators and the FDIC transferred the bank’s assets to a newly created institution — the Deposit Insurance Bank of Santa Clara. The new bank will start paying out insured deposits on Monday. Then the FDIC and California regulators plan to sell off the rest of the assets to make other depositors whole.

    There was unease in the banking sector all week, with shares tumbling by double digits. Then news of Silicon Valley Bank’s distress pushed shares of almost all financial institutions even lower Friday.

    The failure arrived with incredible speed. Some industry analysts suggested Friday that the bank was still a good company and a wise investment. Meanwhile, Silicon Valley Bank executives were trying to raise capital and find additional investors. However, trading in the bank’s shares was halted before stock market‘s opening bell due to extreme volatility.

    Shortly before noon, the FDIC moved to shutter the bank. Notably, the agency did not wait until the close of business, which is the typical approach. The FDIC could not immediately find a buyer for the bank’s assets, signaling how fast depositors cashed out.

    The White House said Treasury Secretary Janet Yellen was “watching closely.” The administration sought to reassure the public that the banking system is much healthier than during the Great Recession.

    “Our banking system is in a fundamentally different place than it was, you know, a decade ago,” said Cecilia Rouse, chair of the White House Council of Economic Advisers. “The reforms that were put in place back then really provide the kind of resilience that we’d like to see.”

    In 2007, the biggest financial crisis since the Great Depression rippled across the globe after mortgage-backed securities tied to ill-advised housing loans collapsed in value. The panic on Wall Street led to the demise of Lehman Brothers, a firm founded in 1847. Because major banks had extensive exposure to one another, the crisis led to a cascading breakdown in the global financial system, putting millions out of work.

    At the time of its failure, Silicon Valley Bank, which is based in Santa Clara, California, had $209 billion in total assets, the FDIC said. It was unclear how many of its deposits were above the $250,000 insurance limit, but previous regulatory reports showed that lots of accounts exceeded that amount.

    The bank announced plans Thursday to raise up to $1.75 billion in order to strengthen its capital position. That sent investors scurrying and shares plunged 60%. They tumbled lower still Friday before the opening of the Nasdaq, where the bank’s shares were traded.

    As its name implied, Silicon Valley Bank was a major financial conduit between the technology sector, startups and tech workers. It was seen as good business sense to develop a relationship with the bank if a startup founder wanted to find new investors or go public.

    Conceived in 1983 by co-founders Bill Biggerstaff and Robert Medearis during a poker game, the bank leveraged its Silicon Valley roots to become a financial cornerstone in the tech industry.

    Bill Tyler, the CEO of TWG Supply in Grapevine, Texas, said he first realized something was wrong when his employees texted him at 6:30 a.m. Friday to complain that they did not receive their paychecks.

    TWG, which has just 18 employees, had already sent the money for the checks to a payroll services provider that used Silicon Valley Bank. Tyler was scrambling to figure out how to pay his workers.

    “We’re waiting on roughly $27,000,” he said. “It’s already not a timely payment. It’s already an uncomfortable position. I don’t want to ask any employees, to say, ‘Hey, can you wait until mid-next week to get paid?’”

    Silicon Valley Bank’s ties to the tech sector added to its troubles. Technology stocks have been hit hard in the past 18 months after a growth surge during the pandemic, and layoffs have spread throughout the industry. Venture capital funding has also been declining.

    At the same time, the bank was hit hard by the Federal Reserve’s fight against inflation and an aggressive series of interest rate hikes to cool the economy.

    As the Fed raises its benchmark interest rate, the value of generally stable bonds starts to fall. That is not typically a problem, but when depositors grow anxious and begin withdrawing their money, banks sometimes have to sell those bonds before they mature to cover the exodus.

    That is exactly what happened to Silicon Valley Bank, which had to sell $21 billion in highly liquid assets to cover the sudden withdrawals. It took a $1.8 billion loss on that sale.

    Ashley Tyrner, CEO of FarmboxRx, said she had spoken to several friends whose businesses are backed by venture capital. She described them as being “beside themselves” over the bank’s failure. Tyrner’s chief operating officer tried to withdraw her company’s funds on Thursday but failed to do so in time.

    “One friend said they couldn’t make payroll today and cried when they had to inform 200 employees because of this issue,” Tyrner said.

    ___

    Associated Press Writers Michael Liedtke, Cora Lewis and Matt O’Brien, Frank Bajak and Barbara Ortutay contributed to this story.

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  • Asian stocks tumble amid fears about faster rate hikes

    Asian stocks tumble amid fears about faster rate hikes

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    TOKYO — Asian shares were mostly lower Wednesday as investors fretted that the Federal Reserve might raise interest rates faster if pressure stays high on inflation.

    Japan’s benchmark Nikkei 225 edged up 0.5% to finish at 28,444.19. Australia’s S&P/ASX 200 slipped 0.8% to 7,307.80. South Korea’s Kospi dropped 1.3% to 2,430.93.

    Chinese shares sank after officials in Beijing announced plans for a regulatory shakeup. Hong Kong’s Hang Seng tumbled 2.6% to 20,005.12, while the Shanghai Composite shed 0.6% to 3,266.65.

    Wall Street shuddered Tuesday after Fed Chairman Jerome Powell told lawmakers that the central bank would keep interest rates higher if need be to fight inflation.

    “Asian shares were under pressure on Wednesday as global equities sold off after hawkish comments from Fed Chair Powell. He noted recent macro data, while possibly related to seasonal adjustments, suggest the Committee might have to raise rates higher than expected,” said Anderson Alves at ActivTrades.

    A Fed meeting later this month is expected to result in another rate hike. When Powell speaks at U.S. Congress again later in the day, traders will watch to see if he reinforces the hawkish rhetoric or tones it down, given the market reaction.

    Wall Street declined as angst over the Fed raised worries about a possible recession down the line. The S&P 500 dropped 1.5% for one of its worst days of the year so far, closing at 3,986.37. The Dow Jones Industrial Average lost 1.7% to 32,856.46, and the Nasdaq sank 1.3% to 11,530.33.

    Inflation and what the Fed is doing about it have been at the center of Wall Street’s sharp swings this year. After seeming to be on a steady decline since last summer, reports on inflation last month came in surprisingly hot. So did a suite of other data on the economy.

    That raised fears that inflation is staying stickier than feared and that the Fed will have to raise rates higher than earlier thought. Higher rates can drag down inflation because they slow the economy, but they hurt prices for stocks and other investments. They also raise the risk of a recession later on.

    Powell has confirmed some of those fears, saying the data mean “the ultimate level of interest rates is likely to be higher than previously anticipated.” He also said in his testimony to a Senate committee that the Fed is ready to increase the pace of its hikes again if needed.

    That would be a sharp turnaround after it had just slowed its pace of increases to 0.25 percentage points last month from earlier hikes of 0.50 and 0.75 points.

    “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said. “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

    After sitting at virtually unchanged levels just before Powell’s testimony, stocks fell immediately afterward.

    “This is the market coming back to realistic expectations,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. ”I think it’s going to continue to wash out some of the excesses in the market.”

    Wall Street has largely abandoned hopes that percolated early this year for a possible cut to interest rates later in 2023. It also upped its forecast for how high the Fed will ultimately take rates before pausing.

    That’s been most clear in the bond market, where the yield on the 10-year Treasury topped 4% last week and hit its highest level since November. It helps set rates for mortgages and other important loans.

    Early Wednesday it was at 4%.

    The two-year Treasury yield, which moves more on expectations for the Fed, shot up to 5.01% from 4.87% and is at its highest level since 2007.

    The U.S. government’s monthly jobs report, due Friday, will provide an update on wages. The Fed’s fear is that too-strong gains could push prices higher.

    The challenge for the market has been that the economy has actually been too strong, despite all the rate increases the Fed has thrown at it. That suggests a recession may not be looming but also likely means rates will need to stay higher for longer, raising risks of a deeper recession down the line.

    In energy trading, benchmark U.S. crude lost 10 cents to $77.48 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, rose 6 cents to $83.35 a barrel.

    In currency trading, the U.S. dollar rose to 137.72 Japanese yen from 137.07 yen. The euro cost $1.0537, down from $1.0551.

    ___

    AP Business Writer Stan Choe contributed.

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  • Asian stocks tumble amid fears about faster rate hikes

    Asian stocks tumble amid fears about faster rate hikes

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    TOKYO — Asian shares were mostly lower Wednesday as investors fretted that the Federal Reserve might raise interest rates faster if pressure stays high on inflation.

    Japan’s benchmark Nikkei 225 edged up 0.5% to finish at 28,444.19. Australia’s S&P/ASX 200 slipped 0.8% to 7,307.80. South Korea’s Kospi dropped 1.3% to 2,430.93.

    Chinese shares sank after officials in Beijing announced plans for a regulatory shakeup. Hong Kong’s Hang Seng tumbled 2.6% to 20,005.12, while the Shanghai Composite shed 0.6% to 3,266.65.

    Wall Street shuddered Tuesday after Fed Chairman Jerome Powell told lawmakers that the central bank would keep interest rates higher if need be to fight inflation.

    “Asian shares were under pressure on Wednesday as global equities sold off after hawkish comments from Fed Chair Powell. He noted recent macro data, while possibly related to seasonal adjustments, suggest the Committee might have to raise rates higher than expected,” said Anderson Alves at ActivTrades.

    A Fed meeting later this month is expected to result in another rate hike. When Powell speaks at U.S. Congress again later in the day, traders will watch to see if he reinforces the hawkish rhetoric or tones it down, given the market reaction.

    Wall Street declined as angst over the Fed raised worries about a possible recession down the line. The S&P 500 dropped 1.5% for one of its worst days of the year so far, closing at 3,986.37. The Dow Jones Industrial Average lost 1.7% to 32,856.46, and the Nasdaq sank 1.3% to 11,530.33.

    Inflation and what the Fed is doing about it have been at the center of Wall Street’s sharp swings this year. After seeming to be on a steady decline since last summer, reports on inflation last month came in surprisingly hot. So did a suite of other data on the economy.

    That raised fears that inflation is staying stickier than feared and that the Fed will have to raise rates higher than earlier thought. Higher rates can drag down inflation because they slow the economy, but they hurt prices for stocks and other investments. They also raise the risk of a recession later on.

    Powell has confirmed some of those fears, saying the data mean “the ultimate level of interest rates is likely to be higher than previously anticipated.” He also said in his testimony to a Senate committee that the Fed is ready to increase the pace of its hikes again if needed.

    That would be a sharp turnaround after it had just slowed its pace of increases to 0.25 percentage points last month from earlier hikes of 0.50 and 0.75 points.

    “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes,” Powell said. “Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

    After sitting at virtually unchanged levels just before Powell’s testimony, stocks fell immediately afterward.

    “This is the market coming back to realistic expectations,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. ”I think it’s going to continue to wash out some of the excesses in the market.”

    Wall Street has largely abandoned hopes that percolated early this year for a possible cut to interest rates later in 2023. It also upped its forecast for how high the Fed will ultimately take rates before pausing.

    That’s been most clear in the bond market, where the yield on the 10-year Treasury topped 4% last week and hit its highest level since November. It helps set rates for mortgages and other important loans.

    Early Wednesday it was at 4%.

    The two-year Treasury yield, which moves more on expectations for the Fed, shot up to 5.01% from 4.87% and is at its highest level since 2007.

    The U.S. government’s monthly jobs report, due Friday, will provide an update on wages. The Fed’s fear is that too-strong gains could push prices higher.

    The challenge for the market has been that the economy has actually been too strong, despite all the rate increases the Fed has thrown at it. That suggests a recession may not be looming but also likely means rates will need to stay higher for longer, raising risks of a deeper recession down the line.

    In energy trading, benchmark U.S. crude lost 10 cents to $77.48 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, rose 6 cents to $83.35 a barrel.

    In currency trading, the U.S. dollar rose to 137.72 Japanese yen from 137.07 yen. The euro cost $1.0537, down from $1.0551.

    ___

    AP Business Writer Stan Choe contributed.

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  • China sets this year’s economic growth target at ‘around 5%’

    China sets this year’s economic growth target at ‘around 5%’

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    BEIJING — China’s government announced plans for a consumer-led revival of the struggling economy as its legislature opened a session Sunday that will tighten President Xi Jinping’s control over business and society.

    Premier Li Keqiang, the top economic official, set this year’s growth target at “around 5%” following the end of anti-virus controls that kept millions of people at home and triggered protests. Last year’s growth in the world’s second-largest economy fell to 3%, the second-weakest level since at least the 1970s.

    “We should give priority to the recovery and expansion of consumption,” Li said in a speech on government plans before the ceremonial National People’s Congress in the Great Hall of the People in central Beijing.

    The full meeting of the 2,977 members of the NPC is the year’s highest-profile event but its work is limited to endorsing decisions made by the ruling Communist Party and showcasing official initiatives.

    This month, the NPC is due to endorse the appointment of a government of Xi loyalists including a new premier after the 69-year-old president expanded his status as China’s most powerful figure in decades by awarding himself a third five-year term as party general secretary in October, possibly preparing to become leader for life. Li, an advocate of free enterprise, was forced out as the No. 2 party leader in October.

    Xi’s new leadership team will face challenges ranging from weak global demand for exports and lingering U.S. tariff hikes in a feud over technology and security to curbs on access to Western processor chips due to security fears.

    Separately, the Ministry of Finance announced a 7.2% budget increase for the ruling party’s military wing, the People’s Liberation Army, to 1.55 trillion yuan ($224 billion), the 29th straight annual increase. China’s military spending is the world’s second highest after the United States. The Stockholm International Peace Research Institute says the two countries together account for half of global military outlays.

    Li’s report called for boosting consumer spending by increasing household incomes but gave no details in his unusually brief, 53-minute speech. It was less than half the length of work reports in some previous years.

    The premier called for “building up our country’s strength and self-reliance in science and technology,” an area in which Beijing’s state-led efforts to create competitors in electric cars, clean energy, telecoms and other fields have strained relations with Washington and other trading partners. They complain China steals or pressures foreign companies to hand over technology and improperly subsidizes and shields its fledgling competitors in violation of its market-opening commitments.

    Xi earlier singled out encouraging jittery consumers and entrepreneurs to spend and invest as a priority at the ruling party’s economic planning meeting in December.

    Beijing needs to “fully release consumption potential,” Xi said, according to a text released last month.

    Since taking power in 2012, Xi has promoted an even more dominant role for the ruling party. He has called for the party to return to its “original mission” as China’s economic, social and cultural leader and carry out the “rejuvenation of the great Chinese nation.”

    Xi has crushed dissent, stepped up censorship and control over information, and tightened control over Hong Kong.

    Xi’s government has tightened control over e-commerce and other tech companies with anti-monopoly and data security crackdowns that wiped billions of dollars off their stock market value.

    Beijing is pressing them to pay for social welfare and official initiatives to develop processor chips and other technology. That has prompted warnings economic growth will suffer.

    Li’s report Sunday reinforced the importance of state industry. It promised to support entrepreneurs who generate jobs and wealth but also said the government will “enhance the core competitiveness” of state-owned companies that dominate industries from banking and energy to telecoms and steel.

    Li also called for “resolute steps” to oppose formal independence for Taiwan, the self-ruled island democracy claimed by Beijing as part of its territory. He called for “peaceful reunification” between China and Taiwan, which split in 1949 after a civil war, but announced no initiatives.

    Taiwan never has been part of the People’s Republic of China, but Beijing says it is obligated to unite with the mainland, by force if necessary. Xi’s government has stepped up efforts to intimidate the island by flying fighter jets and bombers nearby and firing missiles into the ocean.

    Chinese economic growth has struggled since mid-2021, when tighter controls on debt that Beijing worries is dangerously high triggered a slump in the vast real estate industry, which supports millions of jobs. Smaller developers were forced into bankruptcy and some defaulted on bonds, causing alarm in global financial markets.

    Longer term, the workforce has been shrinking for a decade, putting pressure on plans to increase China’s wealth and global influence.

    Consumer spending is gradually recovering, but the International Monetary Fund and some private sector forecasters expect economic growth this year as low as 4.4%, well below the official target.

    A measure of factory activity rose to a nine-year high in February. Other measures of activity including the number of subway passengers and express deliveries rose.

    A central bank official said Friday real estate activity is recovering and lending for construction and home purchases is rising.

    A recovery based on consumer spending is likely to be more gradual than one driven by government stimulus or a boom in real estate investment. But Chinese leaders are trying to avoid reigniting a rise in debt and want to nurture self-sustaining growth based on consumption instead of exports and investment.

    The official in line to become premier is Li Qiang, a former party secretary of Shanghai who is close to Xi but has no government experience at the national level. Li Qiang was named No. 2 party leader in October.

    That reflects Xi’s emphasis on promoting officials with whom he has personal history and bypassing party tradition that leadership candidates need experience as Cabinet ministers or in other national-level posts.

    If achieved, the official growth target would be an improvement over last year but down sharply from 2021’s 8.1%.

    Last year’s slump had global repercussions, depressing Chinese sales of autos and consumer goods and demand for oil, food and other imports. Even after the end of anti-virus curbs, auto sales fell by double digits in January and retail sales contracted.

    Entrepreneurs and foreign companies have been rattled by tighter political controls.

    Foreign business groups said last year global companies were shifting investment plans away from China because travel curbs blocked executives from visiting the country.

    Li, the premier, tried to reassure foreign investors by promising to open Chinese markets wider and repeating official pledges of equal treatment with domestic enterprises.

    “China is sure to provide even greater business opportunities for foreign companies,” he said.

    The party has indicated its tech crackdown is winding down but has given no sign it is backing off a campaign to tighten political control over the industry.

    Entrepreneurs were shaken anew in mid-February when a star banker, Bao Fan, who was involved in some of the biggest tech deals, disappeared. His company announced last week Bao was “cooperating in an investigation” but gave no details.

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  • 2023 US recession now expected to start later than predicted

    2023 US recession now expected to start later than predicted

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    WASHINGTON (AP) — A majority of the nation’s business economists expect a U.S. recession to begin later this year than they had previously forecast, after a series of reports have pointed to a surprisingly resilient economy despite steadily higher interest rates.

    Fifty-eight percent of 48 economists who responded to a survey by the National Association for Business Economics envision a recession sometime this year, the same proportion who said so in the NABE’s survey in December. But only a quarter think a recession will have begun by the end of March, only half the proportion who had thought so in December.

    The findings, reflecting a survey of economists from businesses, trade associations and academia, were released Monday.

    A third of the economists who responded to the survey now expect a recession to begin in the April-June quarter. One-fifth think it will start in the July-September quarter.

    The delay in the economists’ expectations of when a downturn will begin follows a series of government reports that have pointed to a still-robust economy even after the Federal Reserve has raised interest rates eight times in a strenuous effort to slow growth and curb high inflation.

    In January, employers added more than a half-million jobs, and the unemployment rate reached 3.4%, the lowest level since 1969.

    And sales at retail stores and restaurants jumped 3% in January, the sharpest monthly gain in nearly two years. That suggested that consumers as a whole, who drive most of the economy’s growth, still feel financially healthy and willing to spend.

    At the same time, several government releases also showed that inflation shot back up in January after weakening for several months, fanning fears that the Fed will raise its benchmark rate even higher than was previously expected. When the Fed lifts its key rate, it typically leads to more expensive mortgages, auto loans and credit card borrowing. Interest rates on business loans also rise.

    Tighter credit can then weaken the economy and even cause a recession. Economic research released Friday found that the Fed has never managed to reduce inflation from the high levels it has recently reached without causing a recession.

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  • Survey: Business economists push back US recession forecasts

    Survey: Business economists push back US recession forecasts

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    A majority of the nation’s business economists expect a U.S. recession to begin later this year than they had previously forecast, after a series of reports have pointed to a surprisingly resilient economy despite steadily higher interest rates

    ByCHRISTOPHER RUGABER AP Economics Writer

    February 26, 2023, 5:06 PM

    WASHINGTON — A majority of the nation’s business economists expect a U.S. recession to begin later this year than they had previously forecast, after a series of reports have pointed to a surprisingly resilient economy despite steadily higher interest rates.

    Fifty-eight percent of 48 economists who responded to a survey by the National Association for Business Economics envision a recession sometime this year, the same proportion who said so in the NABE’s survey in December. But only a quarter think a recession will have begun by the end of March, only half the proportion who had thought so in December.

    The findings, reflecting a survey of economists from businesses, trade associations and academia, were released Monday.

    A third of the economists who responded to the survey now expect a recession to begin in the April-June quarter. One-fifth think it will start in the July-September quarter.

    The delay in the economists’ expectations of when a downturn will begin follows a series of government reports that have pointed to a still-robust economy even after the Federal Reserve has raised interest rates eight times in a strenuous effort to slow growth and curb high inflation.

    In January, employers added more than a half-million jobs, and the unemployment rate reached 3.4%, the lowest level since 1969.

    And sales at retail stores and restaurants jumped 3% in January, the sharpest monthly gain in nearly two years. That suggested that consumers as a whole, who drive most of the economy’s growth, still feel financially healthy and willing to spend.

    At the same time, several government releases also showed that inflation shot back up in January after weakening for several months, fanning fears that the Fed will raise its benchmark rate even higher than was previously expected. When the Fed lifts its key rate, it typically leads to more expensive mortgages, auto loans and credit card borrowing. Interest rates on business loans also rise.

    Tighter credit can then weaken the economy and even cause a recession. Economic research released Friday found that the Fed has never managed to reduce inflation from the high levels it has recently reached without causing a recession.

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