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(Archyde.com) – Investor confidence in the banking sector continued to tumble on Tuesday after the European Central Bank said recent volatility highlighted the need for more scrutiny by regulators.
European bank shares declined slightly, while in the United States the Banks Index rose on the Standard & Poor’s 500 Index by 0.3 percent.
The safe haven lost its strength against a basket of major currencies for the second day. Meanwhile, prices rose supported by demand expectations as banking concerns faded.
Major U.S. banking regulators said on Monday they plan to tell Congress that the public financial system remains resilient despite recent banking failures and that they will review their policies to try to prevent a cycle of banking crises.
US House of Representatives Speaker Kevin McCarthy told CNBC on Tuesday that lawmakers should focus on addressing the country’s spending and reducing debt, and that there is no universal insurance for all bank deposits.
“I don’t think we need that at this moment,” he added.
Officials from the Federal Reserve, the Federal Deposit Insurance Corporation and the Treasury Department are scheduled to testify before congressional committees on Tuesday.
Policymakers, regulators and central banks stress that the turmoil that followed the collapse of Silicon Valley and Signature banks in the United States this month is not a repeat of the global financial crisis.
The Silicon Valley collapse triggered the worst banking crisis since 2008, sending banking stocks around the world reeling, raising fears of a systemic meltdown and putting central banks and regulators on high alert.
And First Citizens Bankers said on Monday that it would take over the deposits and loans of the collapsed Silicon Valley Bank, thus concluding a chapter of a crisis of confidence that caused turmoil in global financial markets.
In Europe, the ECB’s chief supervisor said last week’s sell-off in Deutsche Bank (ETR:) shares showed that investors remain wary of movements in the credit default swaps market.
Credit default swap rates at Deutsche Bank (ETR:) have fallen since Friday, but remain well above levels before the collapse of Silicon Valley and UBS’ government-supervised takeover of Credit Suisse.
* ‘Acute ambiguity’
“What really worries me is the amount of stress (and) anxiety I felt in the market and among investors,” Andrea Enrea of the European Central Bank said at a conference in Frankfurt.
“There are markets, such as the credit default swap market, which are very opaque and absolutely unreliable and do not have enough liquidity, and with a few million (euro) fear spreads to banks with assets worth trillions of dollars, which affects stock prices as well as deposit exits,” he added. .
And Andrew Bailey, Governor of the Bank of England, said that the collapse of Silicon Valley was the fastest since the collapse of the British Barings Bank in 1995, after the losses caused by Nick Leeson.
Bailey added that the stress that led to the lack of confidence in Credit Suisse was caused by specific problems at the second largest bank in Switzerland.
“I don’t think any of these problems, and we’ve said this, are causing stress in the British banking system,” Bailey told Parliament’s Treasury Committee, but noted that the sector was going through a period of heightened tension.
Senior officials of the Bank of Spain said that the uncertainty caused by the disruption of the banking sector may lead to a continuous increase in financing costs for Spanish banks and requires a comprehensive assessment of the sources of liquidity and financing.
Banks in France came under scrutiny on Tuesday, as authorities searched the headquarters of several large institutions in Paris, including Societe Generale and BNP Paribas, as part of a wide European investigation into dividend tax payments.
Societe Generale confirmed the searches. The other banks did not immediately respond to Archyde.com requests for comment.
(Prepared by Mohamed Attia for the Arabic Bulletin – Edited by Ali Khafaji)