Cautious calm returns to banking stocks as focus shifts to regulation

SINGAPORE, March 15 (Reuters) – Battered Japanese bank stocks clawed back some of their biggest losses on Wednesday after the collapse of Silicon Valley Bank (SVB) as regulators and fund managers eased investor concerns about contagion.

Markets and financial officials were on edge, however, as U.S. depositors sought the protection of big banks amid concerns about the health of smaller firms and the prospect of more failures in the sector.

Moody’s Investors Service on Tuesday revised its outlook on the US banking system from “stable” to “negative”, citing heightened risks to the sector.

Last week’s declines rocked financial markets in the U.S. banking sector, particularly mid-tier banks such as SVB ( SIVB.O ) and New York-based Signature Bank ( SBNY.O ). .

Some calm returned to Wall Street on Tuesday, which lifted Asian markets on Wednesday, as volatility ( .VIX ) fell and bargain hunters began circling assets of slumping SVB.

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“We’ve seen some stability lately, but I honestly don’t know if that’s stability or the appearance of stability, because I don’t know what’s going on behind the scenes in the thousands of small and medium-sized depository banks across the U.S.,” said Economics and Markets at NatWest Markets. Global head of strategy John Briggs said.

Japan’s Bank of Tokyo Stock Exchange ( .IBNKS.T ) index rose more than 4% on Wednesday, after three consecutive days of heavy selling and a sharp fall in the days since the 2011 earthquake and tsunami hit Japan.

Investors were particularly concerned about large holdings of Japanese lenders, especially those in US Treasuries.

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However, Japanese Finance Minister Shunichi Suzuki said on Wednesday that differences in the structure of bank deposits meant that local banks would not face an incident like SVB’s collapse.

“Risk sentiment appears to be normalizing from the SVB-induced panic,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

MSCI Asia’s ex-Japan financial index ( .MIAX0FN00PUS ) was last higher 1%, reversing Tuesday’s 2% drop.

US bank stocks, crushed following a rough start to the week, recovered some ground on Tuesday, helped by news that private equity and buyout giants are looking to acquire some of SVB’s assets, as investors hope efforts to boost confidence will be broadly thwarted. Financial crisis.

Apollo Global Management Inc ( APO.N ), Blackstone Inc ( BX.N ) and Carlyle Group ( CG.O ) have reportedly expressed interest in SVB’s loan book.

Separately, SVB Financial Group said on Tuesday that Goldman Sachs Group Inc ( GS.N ) had bought a bond portfolio on which it posted a $1.8 billion loss, leading to SVB’s failure.

Meanwhile, Charles Schwab ( SCHW.N ) Chief Executive Walt Bettinger said on Tuesday that the bank has plenty of cash flow and is not currently looking for capital or deals.

The firm brought $4 billion in assets to its parent company on Friday as clients moved assets from other firms to Schwab, Betinger told Reuters in an interview.

BlackRock Inc ( BLK.N ) Chief Executive Lawrence Fink warned on Wednesday that the U.S. regional banking sector was at risk, although he said it was unclear whether the banking crisis would claim more victims as interest rates rose.

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Friday’s shutdown of SVB – two days after the collapse of Signature Bank – forced US President Joe Biden to rush assurances that the financial system was safe.

In an effort to avoid a similar crisis, the Federal Reserve is considering tougher rules and supervision for medium-sized banks like SVB.

Adding to the Fed’s conundrum, the U.S Inflation data A report on Tuesday showed few signs of easing persistent price pressures in the world’s largest economy, putting the bank in a bind over how much higher it needs to raise rates to stem inflation without triggering a financial sector shakeup.

“A mixed set of signals leaves the central bank very cautious about its next steps, focusing on curbing financial contagion,” said Stephane Monnier, chief investment officer at Lombard Odier.

“A year after starting to raise interest rates, the Federal Reserve is still chasing evidence that higher borrowing costs are slowing the U.S. economy.”

In Asia, Vietnam’s central bank made a surprise move on Tuesday by cutting several policy rates in an attempt to boost liquidity and support economic growth amid global turmoil caused by the SVB’s collapse.

Statement by Ray Wei; Editing by Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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