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Tag: U.S. Economy

  • Home prices suddenly jump after several months of declines

    Home prices suddenly jump after several months of declines

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    Unexpectedly strong home sales at the start of this year reversed a sharp, several-month decline in home prices. Mortgage rates are behind the swing.

    Home prices nationally rose 0.16% in February, when seasonally adjusted, according to Black Knight. That is the strongest one-month gain since May of last year. Home prices are now 2.6% below their peak last June.

    Of the 50 largest U.S. markets, 39 saw home prices rise in February. That’s a quick turnaround from November, when prices were falling in 48 of 50 markets.

    Behind the quick change are wide swings in mortgage rates. The average rate on the 30-year fixed began rising off of a record low at the start of 2022. By June it had gone from around 4% to just over 6%. Sales slowed down, and prices followed. By fall, the rate shot over 7%, and home prices began cooling more quickly.

    In December and January, however, mortgage rates began pulling back, and homebuyers were quick to take advantage. Closed sales of existing homes in February, which represented contracts signed in December and January, shot a remarkable 14.5% higher, according to the National Association of Realtors.

    “Conscious of changing mortgage rates, home buyers are taking advantage of any rate declines,” Lawrence Yun, NAR’s chief economist, said in the February sales release.

    As with all real estate, however, the price dynamics differ depending on location. Miami continues to see the largest price gains, along with more affordable markets in the Midwest, like Cincinnati, Columbus, Ohio, and Cleveland, according to Black Knight. Meanwhile, prices are still falling in some of the markets which saw the greatest price inflation over the last several years. Those include Austin, Texas, Las Vegas, Salt Lake City, Seattle and San Francisco.

    While mortgage rates were the driving factor for the price turnaround nationally, tight supply is adding to the upward pressure, especially with new spring demand from buyers.

    “The unfortunate reality is that the scarce supply of inventory that’s the source of so much market gridlock isn’t getting any better,” said Andy Walden, Black Knight’s vice president of enterprise research strategy, in the release.

    The number of homes available for sale fell in February for the fifth straight month to the lowest level since May of last year, according to Black Knight. New listings were 27% lower than their pre-Covid pandemic levels.

    “While some price increases – most notably in Miami, which saw the largest of the month – can be chalked up to people moving to the area, we’re seeing stronger price gains more generally in those areas with better affordability and larger inventory deficits,” Walden added.

    Mortgage rates began rising again in February and then fell back slightly in March due to market fears over the U.S. banking system, amid several bank collapses.

    Demand for homes, however, appears not to have been swayed by the crisis, with real estate agents anecdotally still reporting busy open houses. Black Knight is still predicting prices to move lower again throughout the rest of this year, but if supply continues to drop, keeping the competition strong, prices may not have far to fall.

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  • Sen. Elizabeth Warren says she wants to make banking boring again

    Sen. Elizabeth Warren says she wants to make banking boring again

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    Sen. Elizabeth Warren wants banking to be “boring” again following the failures of Silicon Valley Bank and Signature Bank.

    “What I want to do is get banking back where it ought to be, and that is boring,” Warren, D-Mass., said Friday morning on CNBC’s “Squawk on the Street.” “Banking is supposed to be there for putting your money in and you can count on it’s going to be there, and that’s true if you’re a family, that’s true if you’re a small business.”

    Warren said the problem started under the Trump administration, when bank CEOs lobbied Congress to weaken regulation for regional and midsized banks. Silicon Valley Bank was among those who lobbied for the changes, Warren pointed out, noting the bank’s profits surged in the years regulations were loosened.

    During a hearing this week, Warren, a longtime critic of the financial industry, pressed the nation’s top banking regulators on how SVB and Signature were able to fail practically overnight earlier this month. Financial regulators shuttered the two banks, citing systematic contagion fears, after negative news triggered bank runs. The failed banks disproportionately serviced startup and cryptocurrency companies.

    The incident marked the largest U.S. banking failures since the 2008 financial crisis, and the second- and third-biggest bank failures in U.S. history.

    In the weeks since the collapse of the banks, Warren has authored or sponsored three new bills related to bank oversight.

    The first would reverse a Trump-era bill that weakened oversight of medium-sized banks. The second would create an inspector general position within the Federal Reserve, and the third would prohibit executives at publicly traded companies from selling stock options for three years.

    U.S. Senator Elizabeth Warren (D-MA) is interviewed on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., March 31, 2023. 

    Andrew Kelly | Reuters

    “What we want to do is align the incentives,” Warren said Friday. “I have a bipartisan bill for clawbacks and the whole idea is to say to these CEOs going forward ‘hey if you load this bank up on risk and the bank explodes, you’re going to lose that fancy bonus, you’re going to lose that big salary, you’re going to lose those stock options.’”

    Banking should not be an industry that attracts risk-takers, Warren said.

    “I really want to say to bank CEOs, if you’re the kind of guy or gal who wants to roll those dice and take big risks, don’t go into banking,” Warren said. “Banking is about steady profits. Banks should absolutely be able to make profits, but when banks load up on risks, they put depositors at risk, they put small businesses at risk, and ultimately as we’ve learned with these million-dollar banks, they put our whole economy at risk.”

    Warren chided banking regulators for not doing enough and called on Congress to join her in putting safeguards back into place.

    “You’ve got to look at everything that broke here,” Warren said. “We permitted the regulators to take their eye off the ball. Banking is a regulated industry for a reason because of its impact on the rest of the economy. Just as Joe Biden said yesterday – they need to start tightening those regulations down right now.”

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  • It’s the U.S., not Europe’s banking system that’s a concern, top economists say

    It’s the U.S., not Europe’s banking system that’s a concern, top economists say

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    A cargo barge on the River Rhine near the European Central Bank (ECB) headquarters at sunset in the financial district in Frankfurt, Germany,

    Bloomberg | Bloomberg | Getty Images

    Europe learned its lessons after the financial crisis and is now in a strong position to weather further stress in its banking system, several economists and policymakers say.

    A central theme at the Ambrosetti Forum in Italy on Thursday and Friday was the potential for further instability in financial markets, arising from problems in the banking sector — particularly against a backdrop of tightening financial conditions.

    The collapse of U.S.-based Silicon Valley Bank and of several other regional lenders in early March prompted fears of contagion, furthered by the emergency rescue of Credit Suisse by Swiss rival UBS.

    Policymakers on both sides of the Atlantic took decisive action and pledged further support if needed. Markets have staged something of a recovery this week.

    Valerio De Molli, managing partner and CEO of The European House – Ambrosetti, told CNBC on the sidelines of the event on Thursday that “uncertainty and anxiety” would continue to plague markets this year.

    “The more worrying factor is uncertainty in the banking industry, not so much about Europe — the ECB (European Central Bank) has done incredibly well, the European Commission also — the euro zone is stable and sound and profitable, also, but what could happen particularly in the United States is a mystery,” De Molli told CNBC’s Steve Sedgwick.

    De Molli suggested that the collapse of SVB would likely be “the first of a series” of bank failures. However, he contended that “the lessons learned at a global level, but in Europe in particular” had enabled the euro zone to shore up the “financial robustness and stability” of its banking system, rendering a repeat of the 2008 financial crisis “impossible.”

    The emphasis on “lessons learned” in Europe was echoed by George Papaconstantinou — professor and dean at the European University Institute and former Greek finance minister — who also expressed concerns about the U.S.

    We are not facing a banking crisis, says strategist

    “We learned about the need to have fiscal and monetary policy working together, we learned that you need to be ahead of the markets and not five seconds behind, always, we learned about speed of response and the need for overwhelming response sometimes, so all of this is good,” Papaconstantinou told CNBC on Friday.

    He added that the developments of SVB and Credit Suisse were down to “failures in risk management,” and, in the case of SVB, also owed to “policy failures in the U.S.”

    He particularly cited former President Donald Trump’s raising of the threshold under which banks must undergo stress tests from $50 billion to $250 billion. This adjustment to the post-crisis Dodd-Frank legislation effectively meant that the fallen lender was not subject to a level of scrutiny that might have discovered its troubles earlier. The move of 2018 was part of a broad rollback of banking rules put in place in the aftermath of the crisis.

    Although lauding the progress made in Europe, Papaconstantinou emphasized that it is too early to tell whether there is broader weakness in the banking system. He noted that there is no room for complacency from policymakers and regulators, many of whom have promised continued vigilance.

    No crisis repeats itself in exactly the same way, professor says

    “We are in an environment where interest rates are rising, therefore bond prices are falling, and therefore it is quite likely that banks find themselves with a hole, because they have invested in longer term instruments, and that is a problem,” he said.

    “We are in an environment of rising inflation, therefore a lot of the loans that they did on very low interest rates are problematic for them, so it is not a very comfortable environment. It is not an environment where we can sit back and say, ‘okay, this was just two blips, and we can continue as usual’. Not at all.”

    ‘Two-front war’

    Spanish Economy Minister Nadia Calviño on Friday said that banks in Spain have even stronger solvency and liquidity positions than many of their European peers.

    “We do not see any signs of stress in the Spanish market, other than the general volatility we see in financial markets these days,” she said, adding that the situation is now “totally different” from what it was in the run up to the European debt crisis in 2012.

    “We learnt the lessons of the financial crisis, there’s been deep restructuring in this decade, and they are in a stronger position than in the past, obviously.”

    Addressing food inflation is a top priority because it's hurting families, Spanish minister says

    Unenviably, central banks must fight a “two-front war” and simultaneously combat high inflation and instability in the financial sector, noted Gene Frieda, executive vice president and global strategist at Pimco.

    “There is now something happening that is outside the Fed’s control in the banking sector, and we all have our views in terms of how bad that gets, but my own sense is that we’re not facing a banking crisis, that there will be some tightening in credit conditions, it will bring a recession forward. It’s not the end of the world, but it’s certainly not discounted in the equity market,” Frieda told CNBC on Friday.

    “We’re still fighting inflation, but, at the same time, we’re fighting these uncertainties in the banking sector. All of the central banks will try to distinguish between the two and say, on the one hand, we can use certain policies to deal with the financial instability. On the other hand, we can use interest rates to fight inflation. But those two will get muddied, and I think, inevitably, financial instability will become the one that’s dominant.”

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  • SVB’s collapse is a symptom of how ‘bubble-prone’ the whole system is, author says

    SVB’s collapse is a symptom of how ‘bubble-prone’ the whole system is, author says

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    Sebastian Mallaby, Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations think tank, discusses the recent collapse of Silicon Valley Bank. Mallaby is the author of “The Power Law: Venture Capital and the Making of the New Future.”

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  • Further interest rate hikes could be ‘really, really difficult’ for bank stocks, fund manager says

    Further interest rate hikes could be ‘really, really difficult’ for bank stocks, fund manager says

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    Neil Brown, head of equities at GIB Asset Management, discusses the outlook for central bank interest rate policy and says that the Federal Reserve may not hike rates much higher, but will likely keep them elevated throughout 2023 and into 2024.

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  • ‘Nationalizing bond markets’ left central banks unprepared for inflation, top HSBC economist says

    ‘Nationalizing bond markets’ left central banks unprepared for inflation, top HSBC economist says

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    One Canada Square, at the heart of Canary Wharf financial district seen standing between the Citibank building and HSBC building on 14th October 2022 in London, United Kingdom.

    Mike Kemp | In Pictures | Getty Images

    The prolonged period of loose monetary policy after the global financial crisis equated to central banks “nationalizing bond markets,” and meant policymakers were slow off the mark in containing inflation over the past two years, according to HSBC Senior Economic Adviser Stephen King.

    Central banks around the world have hiked interest rates aggressively over the past year in a bid to rein in soaring inflation, after a decade of loose financial conditions. The swift rise in interest rates has intensified concerns about a potential recession and exposed flaws in the banking system that have led to the collapse of several regional U.S. banks.

    Speaking to CNBC at the Ambrosetti Forum in Italy on Friday, King said that while quantitative easing had benefited economies trying to recover from the 2008 financial crisis, its duration meant that governments were “probably far too relaxed about adding to government debt.”

    “Part of the problem with QE was the fact that you’re basically nationalizing bond markets. Bond markets have a very very useful role to play when you’ve got inflation, which is they’re an early warning indicator,” King told CNBC’s Steve Sedgwick.

    “It’s a bit like having an enemy bombing raid and you turn off your radar systems — you can’t see the bombers coming along, so effectively it’s the same thing, you nationalize the bond markets, bond markets can’t respond to initial increases in inflation, and by the time central banks spot it, it’s too late, which is exactly what I think has happened over the last two or three years.”

    The U.S. Federal Reserve was slow off the mark in hiking interest rates, initially contending that spiking inflation was “transitory” and the result of a post-pandemic surge in demand and lingering supply chain bottlenecks.

    “So effectively you’ve got a situation whereby they should have been raising interest rates much much sooner than they did, and when they finally got round to raising interest rates they didn’t really want to admit that they themselves had made an error,” King said.

    He suggested that the “wobbles” in the financial system over the past month, which also included the emergency rescue of Credit Suisse by Swiss rival UBS, were arguably the consequence of a prolonged period of low rates and quantitative easing.

    “What it encourages you to do is effectively raise funds very cheaply and invest in all kinds of assets that might be doing very well for a short period of time,” King said.

    “But when you begin to recognize that you’ve got an inflation problem and start to raise rates very very rapidly as we’ve seen over the course of the last couple of years, then a lot of those financial bets begin to go rather badly wrong.”

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  • No crisis repeats itself in exactly the same way, professor says

    No crisis repeats itself in exactly the same way, professor says

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    George Papaconstantinou, professor and dean at the European University Institute and former Greek finance minister, discusses the global banking crisis involving Silicon Valley Bank and Credit Suisse and the changes that have taken place since the 2008 financial crisis.

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  • SVB is ‘probably the first of a series’ of bank failures, Ambrosetti’s De Molli says

    SVB is ‘probably the first of a series’ of bank failures, Ambrosetti’s De Molli says

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    Valerio De Molli, managing partner and CEO at The European House – Ambrosetti, speaks to CNBC’s Steve Sedgwick from the banks of Lake Como, Italy. He says uncertainty across the world’s banking industry is concerning.

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  • Asia is ‘very likely’ to become the center of gravity for digital assets, tech company says

    Asia is ‘very likely’ to become the center of gravity for digital assets, tech company says

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    Dave Chapman of BC Technology Group says the United States is a "very difficult region to navigate from a regulatory standpoint."

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  • Rent growth drops back to pre-pandemic levels, but some markets are falling much harder

    Rent growth drops back to pre-pandemic levels, but some markets are falling much harder

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    A house is available for rent on March 15, 2022 in Los Angeles, California.

    Mario Tama | Getty Images

    Apartment rents have increased slightly for the past few months, as the seasonally stronger spring activity kicks in. But in March they were only up 2.6% from March of 2022.

    That’s the smallest annual gain since April 2021, according to Apartment List. And, after last year’s record-setting pace, rent growth is now slightly below the pre-pandemic average of 2.8%. Some markets, such as San Francisco, are falling at a bigger rate.

    Vacancies are also starting to rise back to normal levels, as more supply comes on the market. They stand at 6.6%, up from 6.4% in February.

    Over 917,000 apartment units were under construction across the U.S. at the end of last year, which will increase the nation’s existing apartment base by 4.9%, according to RealPage Market Analytics. This is the highest number of units under construction since the early 1970s.

    “Even if demand continues to strengthen, a robust supply of new inventory hitting the market this year should keep prices in check. It looks like 2023 is shaping to be a year of modest positive rent growth,” researchers at Apartment List noted in the report.

    Markets seeing the biggest rent jumps compared with a year ago were mostly in the Midwest, with Chicago, Indianapolis, Cincinnati and Louisville all up 6%. Boston rents rounded out the top 5, also up 6%.

    Several major cities are seeing rents decline. Phoenix and Las Vegas rents were down 3% year over year, and San Francisco dropped 1%.

    Rents for single-family homes are also easing, but are still far hotter than apartment rents. Single-family rent growth was 5.7% year over year in January, the lowest rate of appreciation since spring 2021, according to CoreLogic.

    Of the 20 major markets tracked by CoreLogic, Orlando, Florida, had the highest rent gain from a year ago at 8.9%, but that is down from its latest peak of 25% annual growth in April 2022. Miami was seeing 39% annual growth last January, but that’s down to about 7% this year.

    “While rent growth is slowing at all tracked price tiers, declines for the lowest-cost rentals are not as significant, which raises affordability concerns. Annual rent growth for lower-tier properties was about three times the pre-pandemic rate, while gains in the highest tier were nearly one-and-a-half times during the same period,” Molly Boesel, principal economist at CoreLogic.

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  • ‘The first bank crisis of the Twitter generation’: The pressure on banks is very different from 2008

    ‘The first bank crisis of the Twitter generation’: The pressure on banks is very different from 2008

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    It is “unlikely” that European banks will undergo anything as serious as in 2008, according to economists.

    Peter Macdiarmid / Staff / Getty Images

    LONDON — Turbulence across the banking sector has prompted the question of whether we are teetering on the edge of another financial crash, 2008-style. But a banking crisis today would look very different from 15 years ago thanks to social media, online banking, and huge shifts in regulation.

    This is “the first bank crisis of the Twitter generation,” Paul Donovan, chief economist at UBS Global Wealth Management, told CNBC earlier this month, in reference to the collapse of Credit Suisse.

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    Shares of Credit Suisse dropped on March 14 after “material weaknesses” were found in its financial reporting. The news started a tumultuous five days for the lender, which culminated in rival Swiss bank UBS agreeing to take over the beleaguered firm.

    “What social media has done is increase the importance of reputation, perhaps exponentially, and that’s part of this problem I think,” Donavan added.

    Social media gives “more scope for damaging rumours to spread” compared to 2008, Jon Danielsson, director of the Systemic Risk Centre at the London School of Economics, told CNBC in an email.

    “The increased use of the Internet and social media, digital banking and the like, all work to make the financial system more fragile than it otherwise would be,” Danielsson said.

    Social media not only allows rumors to spread more easily, but also much faster.

    “It’s a complete gamechanger,” Jane Fraser, Citi CEO, said at an event hosted by The Economic Club of Washington, D.C., last week.

    “There are a couple of tweets and then this thing [the collapse of Silicon Valley Bank] went down much faster than has happened in history,” Fraser added.

    This is the first banking crisis of the Twitter era, economist says

    Regulators shuttered Silicon Valley Bank on March 10 in what was the biggest U.S. bank collapse since the global financial crisis in 2008.

    While information can spread within seconds, money can now be withdrawn just as quickly. Mobile banking has changed the fundamental behavior of bank users, as well as the optics of a financial collapse.

    “There were no queues outside banks in the way there were with Northern Rock in the U.K. back in [the financial crisis] — that didn’t happen this time — because you just go online and click a couple of buttons and off you go,” Paul Donavan told CNBC. 

    This combination of quick information dissemination and access to funds can make banks more vulnerable, according to Stefan Legge, head of tax and trade policy at the University of St. Gallen’s IFF Institute for Financial Studies.

    “While back in the day, the view of people lining up in front of bank branches caused panic, today we have social media … In a way, bank runs can happen much faster today,” Legge told CNBC in an email.

    Stronger balance sheets

    The European Union made huge efforts to shore up the zone’s economic situation in the aftermath of the financial crisis, including the founding of new financial oversight institutions and implementing stress testing to try to foresee any difficult scenarios and prevent market meltdown.

    Risk in the banking system today is significantly less than it has been at any time over the last 20 or 30 years.

    Bob Parker

    Senior Advisor at International Capital Markets Association

    This makes it “unlikely” that European banks will undergo anything as serious as in 2008, Danielsson told CNBC. 

    “[Bank] funding is more stable, the regulators are much more attuned to the dangers and the capital levels are higher,” Danielsson said.

    Strategist: I don't buy the argument that we have major systemic risks building in banking system

    Today banks are expected to have much more capital as a buffer, and a good metric for measuring the difference between today’s financial situation and 2008 is bank leverage ratios, Bob Parker, senior advisor at International Capital Markets Association, told CNBC’s “Squawk Box Europe” last week.

    “If you actually look at the top 30 or 40 global banks … leverage is low, liquidity is high. Risk in the banking system today is significantly less than it has been at any time over the last 20 or 30 years,” Parker said.

    The European Banking Authority, which was founded in 2011 in response to the financial crisis as part of the European System of Financial Supervision, highlighted this in a statement about the Swiss authorities stepping in to help Credit Suisse.

    “The European banking sector is resilient, with robust levels of capital and liquidity,” the statement said.

    Problematic pockets within the sector

    Individual players can still run into difficulties however, no matter how resilient the sector is as a whole. 

    Parker described this as “pockets of quite serious problems” rather than issues that are ingrained across the entire industry.

    “I actually don’t buy the argument that we have major systemic risk building up in the banking system,” he told CNBC.

    Fraser made similar observations when comparing the current banking system with what happened in 2008. 

    “This isn’t like it was last time, this is not a credit crisis,” Fraser said. “This is a situation where it’s a few banks that have some problems, and it’s better to make sure we nip that in the bud.”

    Trust is key

    One parallel between the 2008 crisis and the current financial scene is the importance of confidence, with “a lack of trust” having played a big part in the recent European banking turmoil, according to Thomas Jordan, chairman of the Swiss National Bank.

    “I do not believe that [mobile banking] was the source of the problem. I think it was a lack of trust, of confidence in different banks, and that then contributed to this situation,” Jordan said at a press conference Thursday.

    If trust is lost, then anything can happen.

    Stefano Ramelli

    Assistant professor in corporate finance at the University of St. Gallen

    Even as banks have enhanced their capital and liquidity positions, and improved regulation and supervision, “failures and lack of confidence” can still occur, José Manuel Campa, the chairperson of the European Banking Authority, said last week.

    “We need to remain vigilant and not be complacent,” Campa told the European Parliament during a discussion on the collapse of Silicon Valley Bank.

    Trust and confidence in the system is a “fundamental law of finance,” according to Stefano Ramelli, assistant professor in corporate finance at the University of St. Gallen.

    “The most important capital for banks is the trust of depositors and investors. If trust is lost, then anything can happen,” Ramelli said.

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  • IMF says risks to financial stability have increased, calls for vigilance

    IMF says risks to financial stability have increased, calls for vigilance

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    ‘Think of the unthinkable’: IMF chief warns world is a very different place after crises like Covid.

    Bloomberg / Contributor / Getty Images

    International Monetary Fund chief Kristalina Georgieva said on Sunday that risks to financial stability have increased and called for continued vigilance although actions by advanced economies have calmed market stress.

    The IMF managing director reiterated her view that 2023 would be another challenging year, with global growth slowing to below 3% due to scarring from the pandemic, the war in Ukraine and monetary tightening.

    Even with a better outlook for 2024, global growth will remain well below its historic average of 3.8% and the overall outlook remained weak, she said at the China Development Forum.

    The IMF, which has predicted global growth of 2.9% this year, is slated to release new forecasts next month.

    Georgieva said policymakers in advanced economies had responded decisively to financial stability risks in the wake of bank collapses but even so vigilance was needed.

    “So, we continue to monitor developments closely and are assessing potential implications for the global economic outlook and global financial stability,” she said, adding that the IMF was paying close attention to the most vulnerable countries, particularly low-income countries with high levels of debt.

    She also warned that geo-economic fragmentation could split the world into rival economic blocs, resulting in “a dangerous division that would leave everyone poorer and less secure.”

    Georgieva said China’s strong economic rebound, with projected GDP growth of 5.2% in 2023, offered some hope for the world economy, with China expected to account for around one third of global growth in 2023.

    The IMF estimates that every 1 percentage point increase in GDP growth in China results in a 0.3 percentage point rise in growth in other Asian economies, she said.

    She urged policymakers in China to work to raise productivity and rebalance the economy away from investment and towards more durable consumption-driven growth, including through market-oriented reforms to level the playing field between the private sector and state-owned enterprises.

    Such reforms could lift real GDP by as much as 2.5% by 2027, and by around 18% by 2037, Georgieva said.

    She said rebalancing China’s economy would also help Beijing reach its climate goals, since moving to consumption-led growth would cool energy demand, reducing emissions and easing energy security pressures.

    Doing so, she said, could reduce carbon dioxide emissions by 15% over the next 30 years, resulting in a fall in global emissions of 4.5% over the same period.

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  • Deutsche Bank is not the next Credit Suisse, analysts say as panic spreads

    Deutsche Bank is not the next Credit Suisse, analysts say as panic spreads

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    A general meeting of Deutsche Bank

    Arne Dedert | picture alliance | Getty Images

    Deutsche Bank shares slid Friday while the cost of insuring against its default spiked, as the German lender was engulfed by market panic about the stability of the European banking sector.

    However, many analysts were left scratching their heads as to why the bank, which has posted 10 consecutive quarters of profit and boasts strong capital and solvency positions, had become the next target of a market seemingly in “seek and destroy” mode.

    The emergency rescue of Credit Suisse by UBS, in the wake of the collapse of U.S.-based Silicon Valley Bank, has triggered contagion concern among investors, which was deepened by further monetary policy tightening from the U.S. Federal Reserve on Wednesday.

    Central banks and regulators had hoped that the Credit Suisse rescue deal, brokered by Swiss authorities, would help calm investor jitters about the stability of Europe’s banks.

    But the fall of the 167-year-old Swiss institution, and the upending of creditor hierarchy rules to wipe out 16 billion Swiss francs ($17.4 billion) of Credit Suisse’s additional tier-one (AT1) bonds, left the market unconvinced that the deal would be sufficient to contain the stresses in the sector.

    Deutsche Bank underwent a multibillion-euro restructure in recent years aimed at reducing costs and improving profitability. The lender recorded annual net income of 5 billion euros ($5.4 billion) in 2022, up 159% from the previous year.

    Its CET1 ratio — a measure of bank solvency — came in at 13.4% at the end of 2022, while its liquidity coverage ratio was 142% and its net stable funding ratio stood at 119%. These figures would not indicate that there is any cause for concern about the bank’s solvency or liquidity position.

    German Chancellor Olaf Scholz told a news conference in Brussels on Friday that Deutsche Bank had “thoroughly reorganized and modernized its business model and is a very profitable bank,” adding that there is no basis to speculate about its future.

    ‘Just not very scary’

    Some of the concerns around Deutsche Bank have centered on its U.S. commercial real estate exposures and substantial derivatives book.

    However, research firm Autonomous, a subsidiary of AllianceBernstein, on Friday dismissed these concerns as both “well known” and “just not very scary,” pointing to the bank’s “robust capital and liquidity positions.”

    “Our Underperform rating on the stock is simply driven by our view that there are more attractive equity stories elsewhere in the sector (i.e. relative value),” Autonomous strategists Stuart Graham and Leona Li said in a research note.

    “We have no concerns about Deutsche’s viability or asset marks. To be crystal clear – Deutsche is NOT the next Credit Suisse.”

    Unlike the stricken Swiss lender, they highlighted that Deutsche is “solidly profitable,” and Autonomous forecasts a return on tangible book value of 7.1% for 2023, rising to 8.5% by 2025.

    ‘Fresh and intense focus’ on liquidity

    Credit Suisse’s collapse boiled down to a combination of three causes, according to JPMorgan. These were a “string of governance failures that had eroded confidence in management’s abilities,” a challenging market backdrop that hampered the bank’s restructuring plan, and the market’s “fresh and intense focus on liquidity risk” in the wake of the SVB collapse.

    While the latter proved to be the final trigger, the Wall Street bank argued that the importance of the environment in which Credit Suisse was trying to overhaul its business model could not be understated, as illustrated by a comparison with Deutsche.

    “The German bank had its own share of headline pressure and governance fumbles, and in our view had a far lower quality franchise to begin with, which while significantly less levered today, still commands a relatively elevated cost base and has relied on its FICC (fixed income, currencies and commodities) trading franchise for organic capital generation and credit re-rating,” JPMorgan strategists said in a note Friday.

    Deutsche Bank CFO discusses the lender's highest profit since 2007

    “By comparison, although Credit Suisse clearly has shared the struggles of running a cost and capital intensive IB [investment bank], for the longest time it still had up its sleeve both a high-quality Asset and Wealth Management franchise, and a profitable Swiss Bank; all of which was well capitalised from both a RWA [risk-weighted asset] and Leverage exposure standpoint.”

    They added that whatever the quality of the franchise, the events of recent months had proven that such institutions “rely entirely on trust.”

    “Where Deutsche’s governance fumbles could not incrementally ‘cost’ the bank anything in franchise loss, Credit Suisse’s were immediately punished with investor outflows in the Wealth Management division, causing what should have been seen as the bank’s ‘crown jewel’ to themselves deepen the bank’s P&L losses,” they noted.

    At the time of SVB’s collapse, Credit Suisse was already in the spotlight over its liquidity position and had suffered massive outflows in the fourth quarter of 2022 that had yet to reverse.

    U.S. banking sector appears in much better shape than European counterparts, says Ed Yardeni

    JPMorgan was unable to determine whether the unprecedented depositor outflows suffered by the Swiss bank had been amassed by themselves in light of SVB’s failure, or had been driven by a fear of those outflows and “lack of conviction in management’s assurances.”

    “Indeed, if there is anything depositors might learn from the past few weeks, both in the U.S. and Europe, it is just how far regulators will always go to ensure depositors are protected,” the note said.

    “Be that as it may, the lesson for investors (and indeed issuers) here is clear – ultimately, confidence is key, whether derived from the market backdrop as a whole (again recalling Deutsche Bank’s more successful re-rating), or from management’s ability to provide more transparency to otherwise opaque liquidity measures.”

    —CNBC’s Michael Bloom contributed to this report.

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  • Key lawmakers say upcoming hearings on bank failures aim to boost U.S. confidence in banking sector

    Key lawmakers say upcoming hearings on bank failures aim to boost U.S. confidence in banking sector

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    WASHINGTON — A bipartisan group of lawmakers overseeing the recent turmoil in the banking sector said Wednesday that they aim to increase Americans’ confidence in the banking industry after Silicon Valley Bank and Signature Bank collapsed over the last two weeks.

    The two House and Senate committees that oversee banking have announced back-to-back hearings next week to examine regulatory lapses that missed signs the banks were in trouble. Federal Deposit Insurance Corp. Chairman Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr and Treasury Undersecretary for Domestic Finance Nellie Liang are scheduled to testify at both hearings.

    The high-profile hearings come as lawmakers try to understand what caused the two institutions to fold, and as many Democrats float legislation to bolster safeguards for the financial system. Regulators and lawmakers are also trying to contain further damage to the economy and reinforce confidence in the banking system.

    “My hope is that this first hearing, we can actually get a lot of the information out and establish [the facts],” Rep. Patrick McHenry, a North Carolina Republican and chairman of House Financial Services Committee, said during a summit of the American Bankers Association. “I think this will bring a great deal of certainty and confidence to the market.”

    Last week, the Fed appointed Barr to lead a review of the SVB failure. McHenry said he welcomed the probe and “the other views of financial regulators, as well.”

    The Republican said Congress has a “very important role to play” in reviewing how the banks failed. But he stopped short of calling for legislation to prevent future collapses.

    McHenry said he wanted to ensure the push for legislation matches “the realities of the situation.”

    Sen. Tim Scott, a South Carolina Republican and ranking member of the Senate Banking Committee, also said writing new laws should take a back seat at the hearings to investigating what happened.

    “Unfortunately, in Washington, that’s often what occurs, that those on the committee on the left will talk about Dodd-Frank and the reforms that were done in 2018,” he told the bankers’ group. He was referring to calls in Congress to unwind some of the provisions in the 2018 law that weakened regulatory powers in the landmark 2010 Dodd-Frank law.

    “Nothing could be a clearer red herring than that,” he added.

    Former SVB CEO Greg Becker lobbied lawmakers for certain exclusions from Dodd-Frank. But Scott said regulators already had the authority they needed to safeguard the banking system and failed to do so.

    He also said bank executives had a responsibility to adjust their strategies as the Fed embarked on an aggressive interest rate hiking cycle to stem inflation.

    McHenry also questioned the value of adding new regulatory authority or laws to govern the financial sector.

    “It’s important to note that we can’t regulate competence,” McHenry said. “Management of institutions need to be competent, boards of directors need to be competent. We can’t legislate that either in the financial sector or among financial institutions management, nor with the regulators.”

    Sen. Sherrod Brown, an Ohio Democrat and chairman of Senate Banking Committee, compared the SVB collapse to the devastating train crash in East Palestine, Ohio. He said the disaster in his state and the bank failures stemmed in part from companies pushing for fewer regulations and putting less effort into their own safeguards.

    “They have one thing in common: corporate lobbyists pushed for weaker rules, less oversight,” he told the ABA in opening remarks. “Companies cut costs, failed to invest in safety – or perhaps in the case of SVB, were too incompetent to realize they too should care about safety.”

    Brown, who said the congressional hearings can remain “mostly” bipartisan, warned banking lobbyists against using the crisis as a chance to lobby Congress for weaker oversight. He said “we continue to pay the price” when policymakers allow weaker regulations.

    Rep. Maxine Waters, ranking member of the House Financial Services Committee, told the ABA that Congress will have to “take a deep dive” into what took place at Silicon Valley Bank. The California Democrat, who has called for legislation to strengthen congressional authority over clawbacks for bank executives, said she is taking a close look at the high rate of uninsured deposits at SVB.

    At the time of its failure, 94% of the bank’s deposits sat above the FDIC’s $250,000 insurance limit.

    “And of course, I’m looking to see whether or not all of the oversight agencies … really did miss the opportunity to see what was happening and to know what was going on with the balance sheet and to be able to correct things before they got to the point of collapse,” Waters said.

    She added that the financial regulators’ quick decision to close SVB and secure customers’ deposits demonstrated the Biden administration’s competence.

    “The way that the FDIC, the Treasury, president, they way that they handled this should be a message to everybody that your government is at work and can solve problems — serious problems — if they are working together,” she said.

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  • Problems that come with insuring all deposits outweighs the positive, says fmr. Fed chair for supervision

    Problems that come with insuring all deposits outweighs the positive, says fmr. Fed chair for supervision

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    Share

    Closing Bell: Overtime

    Randal Quarles, former Fed vice chair for supervision, joins ‘Closing Bell: Overtime’ to discuss bank failures and regulation.

    06:23

    12 minutes ago

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  • CNBC Daily Open: Jerome Powell flipped the script

    CNBC Daily Open: Jerome Powell flipped the script

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    Federal Reserve Board Chairman Jerome Powell holds a news conference following a Federal Open Market Committee meeting at the Federal Reserve on March 22, 2023 in Washington, DC.

    Alex Wong | Getty Images News | Getty Images

    This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    Markets had expected the Fed’s quarter-point hike. Powell’s warnings on the economy caught them off guard.

    What you need to know today

    • Asked by a senator if Treasury is considering guaranteeing all bank deposits without congressional approval, Treasury Secretary Janet Yellen said it is not.
    • PRO GameStop surged 35.24% on the news that the company’s had its first profitable quarter in two years. But analysts are warning investors not to jump into the stock because it’s still facing longer-term headwinds.

    The bottom line

    The last few Federal Open Markets Committee meetings have followed a pattern. The central bank would take a hawkish stance and hike rates aggressively, spooking markets. Then Powell’s comments at the press conference would soothe investors, who’d focus on his dovish remarks (probably unintentional and to his chagrin, I’d imagine).

    This time, Powell flipped the script.

    Markets had expected a hike of 25 basis points, and that’s what they got. Being right contributes to a sense of certainty, so all three major indexes actually rose after the Fed’s announcement. Indeed, Quincy Krosby, chief global strategist of LPL Financial, noted “markets are responding well to the expected 25 basis points rate hike.”

    Then Powell started speaking. At first, his reassurances that the “banking system is sound and resilient” continued soothing markets. Then Powell started talking about “tighter credit conditions for households and businesses” that could “easily have a significant macroeconomic effect.” Worse, these conditions were not reflected in stock indexes since they “don’t necessarily capture lending conditions.” This signaled that the economy could be in a worse place than many had thought, wrote CNBC’s Patti Domm.

    As if trying to prove Powell wrong, markets began sliding about an hour after Powell’s speech and couldn’t arrest their decline. By the end of the day, the Dow Jones Industrial Average lost 1.63%, the S&P 500 fell 1.65% and the Nasdaq Composite sank 1.6%.

    They were certainly not helped by Treasury Secretary Janet Yellen’s clarification that, contrary to how markets took her Tuesday comments, the Federal Deposit Insurance Corporation was not considering “blanket insurance” for banking deposits — as I’d warned in this newsletter yesterday.

    The good news is that the Fed forecast it’ll hike interest rates only one more time — probably by another 25 basis points — before pausing. A cut, however, is not on the table, if Powell is to be believed. Amid the ongoing banking turmoil, coupled with the Fed’s warning about the broader economy, it might be better for investors not to fight the Fed.

    Subscribe here to get this report sent directly to your inbox each morning before markets open.

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  • Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

    Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

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    Sen. Cory Booker (D-NJ) speaks during Attorney General nominee Merrick Garland’s confirmation hearing before the Senate Judiciary Committee, Washington, DC, February 22, 2021.

    Al Drago | Pool | Reuters

    WASHINGTON — Sens. Cory Booker and Raphael Warnock have urged the CEOs of 10 major banks to waive overdraft and nonsufficient fund fees that could cost some Americans more than $100 a day in the wake of the failures of Silicon Valley Bank and Signature Bank.

    In letters dated Tuesday, the New Jersey and Georgia Democrats asked banks to help customers whose payments were delayed or missing due to the collapse of SVB and Signature earlier this month. The letters went to the CEOs of Wells Fargo, U.S. Bank, Truist Financial Corporation, TD Bank, Regions Financial Corporation, PNC Bank, JP Morgan Chase, Huntington National Bank, Citizens Bank and Bank of America.

    “Disruptions across the banking industry this month rattled consumers and threw into jeopardy the paychecks of millions of American workers,” wrote Booker, who is a member of the Senate Committee on Small Business and Entrepreneurship, and Warnock.

    The fees, which can reach up to $111 a day for low account balances or up to $175 on low account fees, “compound the difficult financial situation customers find themselves in, particularly when their lack of funds is due to an unprecedented, unexpected delay,” the senators added.

    JPMorgan declined to comment. The other banks that received the letters did not immediately respond to requests for comment.

    The Federal Deposit Insurance Corporation closed SVB on March 10 after the bank announced a nearly $2 billion loss in asset sales. The agency said SVB’s official checks would continue to clear and assets would be accessible the following day.

    Regulators shuttered New York-based Signature Bank days later in an effort to stall a potential banking crisis. Many of its assets have since been sold to Flagstar Bank, a subsidiary of New York Community Bankcorp.

    Booker and Warnock said banking customers whose paydays fell between March 10 and March 13 were unable to receive or deposit checks from payroll providers banking with SVB and Signature Bank. They also noted that online merchant Etsy notified customers of payment delays because it used SVB payment processing.

    The senators also cited an unrelated, nationwide technical glitch on the 10th that caused missing payments and incorrect balances for Wells Fargo customers.

    “These delays will disproportionately harm the impacted customers who are part of the sixty-four percent of Americans living paycheck-to-paycheck, who are often ‘minutes to hours away from having the money necessary to cover’ expenses that lead to overdraft nonsufficient fund fees,” Booker and Warnock wrote.

    They praised steps taken by the Treasury and the FDIC to stem a possible economic catastrophe by ensuring access to depositor funds over the $250,000 FDIC-guarantee threshold and creating a new, one-year loan to financial institutions to safeguard deposits in times of stress.

    Treasury Secretary Janet Yellen on Tuesday said the Treasury is prepared to guarantee all deposits for financial institutions beyond SVB and Signature Bank if the crisis worsens.

    “In line with quick, decisive government response to assist the businesses and individuals who were helped immediately in order to contain the broader fallout of these bank failures, we urge you to act with similar urgency to backstop American families from unexpected and undeserved charges,” the senators wrote.

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  • The Federal Reserve is still expected to go through with a rate hike. What that means for you

    The Federal Reserve is still expected to go through with a rate hike. What that means for you

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    Rate hikes, one year later

    For its part, the Fed has already hiked its benchmark fund rate eight times over the last year to its current level between 4.5% and 4.75%.

    The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. But Fed rates also influence consumers’ borrowing costs, either directly or indirectly, including their credit card, mortgage and auto loan rates.  

    Average credit card rates now top 20%

    Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, too, and credit card rates follow suit.

    After a prolonged period of rate hikes, the average credit card rate is now over 20%, on average — an all-time high — up from 16.34% one year ago.

    At the same time, households are increasingly leaning on credit to afford basic necessities, which makes it even harder for the growing number of borrowers who carry a balance from month to month.

    Mortgage rates now average 6.66%

    Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.

    The average rate for a 30-year, fixed-rate mortgage currently sits at 6.66%, up from 4.40% when the Fed started raising rates last March.

    Here's what the Fed's interest rate hike means for you

    Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rises, the prime rate does, as well, and these rates follow suit. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.76% from 3.96% a year ago.

    Auto loan rates rose to around 6.48%

    Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans.

    The average interest rate on a five-year new car loan is now 6.48%, up from 4% one year ago.

    Federal student loans are already at 4.99%

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by rate hikes. The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year, but any loans disbursed after July 1 will likely be even higher.

    For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

    Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers will also pay more in interest. How much more, however, will vary with the benchmark.

    Deposit rates at banks can reach 5.02%

    D3sign | Moment | Getty Images

    While the Fed has no direct influence on deposit rates, the rates tend to be correlated to changes in the target federal funds rate. The savings account rates at some of the largest retail banks, which were near rock-bottom during most of the Covid pandemic, are currently up to 0.35%, on average.

    Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 5.02%, much higher than last year’s 0.75%, according to Bankrate.

    Although most savers don’t need to worry about the security of their cash at the bank, since no depositor has lost FDIC-insured funds due to a bank failure, any money earning less than the rate of inflation still loses purchasing power over time.

    Subscribe to CNBC on YouTube.

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  • Biden calls on Congress to tighten laws to claw back executive pay, levy penalties in bank failures

    Biden calls on Congress to tighten laws to claw back executive pay, levy penalties in bank failures

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    President Joe Biden called on Congress to give regulators more authority to claw back pay and penalize executives at distressed banks “whose mismanagement contributed to their institutions failing.”

    “No one is above the law – and strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden said in a statement Friday, days after federal bank regulators stepped in to guarantee deposits at two banks that failed over the weekend. “When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again.”

    Biden noted his powers to hold executives accountable were constrained by the law and asked Congress step in.

    “Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” Biden said.

    The president is asking Congress to broaden the Federal Deposit Insurance Corporation’s ability to claw back compensation, including from the sale of stocks, from executives at failed banks. The White House said SVB’s CEO reportedly sold more than $3 million in shares mere days before the FDIC took it over. Under current Dodd-Frank legislation, the FDIC only has the ability to recoup these funds at the nation’s largest financial institutions, not large and medium sized banks like the ones that failed over the weekend.

    Biden also called on Congress to expand the FDIC’s authority to bar executives whose banks are under receivership from working in the banking sector and bring fines against executives of failed banks. All three of the White House’s proposals seek to penalize banking executives for the risky behaviors leading up to the bank failures.

    The nation’s top bank regulators on Sunday announced the FDIC and Federal Reserve would fully cover deposits, including those above the $250,000 limit covered by traditional FDIC insurance, at both failed banks: Silicon Valley Bank and Signature Bank. The agencies noted that Wall Street and large financial institutions — not taxpayers — to foot the bill through a special fee assessed against federally insured lenders.

    A majority of SVB’s customers were small tech companies, venture capital firms and entrepreneurs who used the bank for day-to-day cash management to run their businesses. Those customers had $175 billion on deposit with tens of millions in individual accounts. That left SVB with one of the highest share of uninsured deposits in the country when it collapsed, with 94% of its deposits landing above the FDIC’s $250,000 insurance limit, according to S&P Global Market Intelligence data from 2022.

    The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008. Signature Bank in New York, which was shuttered Sunday over similar fears its failure could pull other institutions down with it, had been a popular funding source for cryptocurrency companies.

    The Federal Reserve also loosened its borrowing guidelines for banks seeking short-term funding through its so-called discount window. It also set up a separate unlimited facility to offer one-year loans under looser terms than usual to shore up troubled banks facing a surge in cash withdrawals. Both programs are being paid for through industry fees, not by taxpayers.

    The president stressed the actions taken over the weekend were necessary to prevent further economic fallout but did not use taxpayer funds.

    “Our banking system is more resilient and stable today because of the actions we took,” Biden said. “On Monday morning, I told the American people and American businesses that they should feel confident that their deposits will be there if and when they need them. That continues to be the case.”

    Treasury Secretary Janet Yellen took questions from members of the Senate Banking Committee on Thursday about the moves taken to date to contain the damage. She stated not all depositors will be protected over the FDIC insurance limits of $250,000 per account as they did for customers of the two failed banks.

    Members of Congress are currently weighing a number of legislative proposals intended to prevent the next Silicon Valley Bank-type failure.

    One of these is an increase in the $250,000 FDIC insurance limit, which several senior Democratic lawmakers have called for in the wake of SVB’s collapse. Following the 2008 financial crisis, Congress raised the FDIC limit from $100,000 to $250,000, and approved a plan under which big banks contribute more to the insurance fund than smaller lenders.

    Like the White House, Congress has limited power as to what it can do to punish individual executives of failing banks, because courts are the venue where the law imposes penalties on those found guilty of wrongdoing.

    A bill has already been introduced in the Senate, in response to the SVB collapse, that seeks to claw back two forms of compensation from top executives at failed banks: Bonuses and profits from stock sales.

    On Tuesday, Sen. Richard Blumenthal, D-Conn. introduced a bill, S. 800, that would amend the IRS rules to impose a higher tax rate on bonuses and profits from selling stock options for executives at banks that have been taken over by the FDIC.

    By Friday morning, the bill had picked up one influential co-sponsor: Sen. Kyrsten Sinema, I-Ariz. As a swing vote within the Democratic caucus, Sinema’s support is seen as important in getting any bill in the Senate passed if Republicans oppose it.

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  • There’ll be a ‘severe earnings recession’ in U.S. banking as long as there’s an inverted yield curve: Strategist

    There’ll be a ‘severe earnings recession’ in U.S. banking as long as there’s an inverted yield curve: Strategist

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    Paul Dietrich of B. Riley Wealth Management says that will keep the banking sector down for "quite a long time."

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