Crisis or ‘Sentiment Contagion’? (And More Links)

The conversation this week around the banking system stress turned largely to credit crunch concerns and the Senate’s Silicon Valley Bank hearings (see related Insider stories). Meanwhile, what Bloomberg described as an “uneasy calm” settled over markets that had been putting extreme pressure on bank stocks. So, has a larger banking crisis been averted? And was this a crisis at all? In a CNBC piece, Vanguard’s Sara Devereux suggests what transpired was “more of a ‘sentiment contagion’ rather than the true systemic contagion we saw during the global financial crisis”—and that the damage has been “largely contained.”  

Here are some of the related stories and ideas we are tracking this week: 

• The week started with a major development: First Citizens BancShares is purchasing a huge chunk of SVB in a deal that includes $72 billion of SVB deposits at a discount of $16.5 billion. The FDIC is keeping around $90 billion in assets and securities for receivership. Bank stocks—especially First Citizens—rallied following the news. [Investor’s Business Daily] 
• But the potential for bank stock volatility remains. A report Tuesday said the March 24 sell-off of  Deutsche Bank stock may have been triggered by a single trade in the bank’s credit-default swaps, highlighting “the illiquidity of credit-default swaps markets.” [Business Insider] 
• Meanwhile, mid-sized banks are racing to contain the ongoing exodus of depositors. One method? So-called “bank-insured cash sweeps, which allow a bank to distribute a company’s deposits among peer banks to insure a larger portion of its cash flow.” [Reuters] 
• Another area banks may need to shore up: staffing. Jason Walker of the Thrive HR consultancy says one lesson of the recent bank failures is to avoid complacency when it comes to maintaining a sufficient roster of internal controls personnel. [American Banker]