NEW YORK (Reuters) – U.S. Treasury Secretary Janet Yellen told bank chief executives that more mergers may be needed after a string of bank failures, prompting CNN reports that the U.S. Stock prices of regional financial institutions fell.
Yellen also reaffirmed the strength and health of the country’s banking system at a meeting with bank CEOs on Thursday following the failures of Silicon Valley Bank, Signature Bank and First Republic Bank.
The KBW Regional Bank Index fell 3%, while PacWest Bancorp and Western Alliance stocks fell 4% each, the biggest losses. Comerica fell 3%, Zions Bancorp lost nearly 5% and Valley National Bancorp lost 5.2%.
Strong interest rates by the U.S. Federal Reserve (Fed) are partly to blame for the regional banking crisis, forcing some lenders to seek new capital to cover interest rate-linked declines in asset values. Part of the reason is that it disappeared.
Fed Chairman Jerome Powell said on Friday that the aftermath of recent banking sector problems is expected to ease some of the pressure on the central bank’s rate hike cycle.
Fed Chairman Powell told a central bank conference in Washington that tight credit conditions “may not need to raise policy rates that much to hit the target.”
But Tom Plumb, portfolio manager at the Plum Balance Fund, said the U.S. economy still showed signs of strength and inflation wasn’t falling as quickly as expected, prompting the Fed to start cutting rates soon. He said he didn’t expect to.
“People thought inflation was going to fall faster and that the pressure and failure of local banks was leading to the Fed cutting interest rates by the end of the year. “It’s an incident,” Mr Plum said.
Shortly after reports of a deadlock in talks were reported, White House officials on Friday said they would not raise the U.S. debt ceiling if both Republicans and Democrats negotiated in good faith and realized they would not get everything they wanted. He said an agreement was still possible.
The battle over the debt ceiling is putting pressure on market sentiment, including for regional bank stocks.
“Unfortunately, the government’s approach will push the public to the brink and cause a major final wave of panic, and the government will come up with some solution,” Plum added.
(New York-based Chibuike Oguh reporter, edited by Deepa Babington)
