The woes of the SVB Financial Group (SIVB) sparked a widespread contagion across banking stocks globally as European bank stocks including HSBC (HSBC), BNP Paribas (BNPQY), Credit Suisse (CS), and UBS (UBS) were all down in pre-market trading on Friday.
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The SVB rout is because of a fall in the bank’s deposits even as many of the bank’s clients are VC firms. This has alarmed investors as it was expected that with interest rates rising in many countries around the world, banks would stand to benefit from higher deposits.
However, a major issue has been that the short-term rates used by banks for borrowing are now higher than the benchmark lending rates. This has resulted in dragging down the profitability of banks.
This widespread sell-off in bank stocks has dragged down the Financial Select Sector SPDR Fund (XLF) by more than 8% in the past five days.
