The State of the Stock Market Amid the Bank Crisis

An initial sense of relief among investors gave way to renewed concern about the health of the banking system on Friday, even after moves to shore up flailing lenders with injections of tens of billions of dollars.

Stocks traded lower, with shares of banks, including the recently rescued First Republic, resuming a slide and erasing the previous day’s gains.

The moves suggested that there is little confidence that the banking crisis has run its course. Banks in the United States also borrowed record amounts from the Federal Reserve to meet short-term needs this week, another sign of stresses in the financial system, according to recently released data.

The S&P 500 index fell slightly in early trading on Friday, with banks large and small recording declines. The smaller banks at the center of the recent turmoil were particularly hard it.

Trading in banking shares remained volatile on Friday. First Republic’s shares fell 16 percent in early trading, erasing all of the previous day’s gains. Other regional banks, like PacWest and Western Alliance, fell nearly 10 percent. Credit Suisse, which received a multibillion-dollar rescue on Thursday, also lost ground in European trading.

On Thursday, First Republic Bank, a midsize lender based in San Francisco whose stock price has cratered this month, announced a $30 billion rescue package. The bank also suspended its dividend and said it would take measures to reduce its debt.

Four storied names in American finance — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — agreed to each place $5 billion in uninsured deposits with First Republic. Goldman Sachs and Morgan Stanley, mainstays of Wall Street, pitched in $2.5 billion apiece, and five smaller regional banks added $1 billion each.

The banks, normally fierce rivals, issued a joint statement explaining their move: “America’s larger banks stand united with all banks to support our economy and all of those around us.”

The deputy Treasury secretary, Wally Adeyemo, said on CNBC on Friday that U.S. officials are seeing deposit withdrawals stabilizing in small and midsize banks, and in some cases modestly reversing. “This was due in no small fact to the way that we resolved the two institutions that failed,” he said, referring to the recent government takeovers of a once-obscure lender to the tech world, Silicon Valley Bank, and the small Signature Bank in New York.

Earlier on Thursday, in Zurich, Credit Suisse, announced that it had grabbed a $54 billion lifeline from Switzerland’s central bank. Credit Suisse has been battered by years of mistakes and controversies that have cost it two chief executives over three years. Shares in the 166-year-old Swiss bank had plunged to a record low before recovering somewhat.

Amid all the volatility, the S&P 500 index remains up for the year and is on course to close out its second-best week of 2023, absent a major reversal on Friday.

Other signs of anxiety persist. New data from the Federal Reserve released on Thursday showed that banks borrowed record amounts of emergency funds from the central bank, tapping both existing facilities and a new program to shore up liquidity that was announced after the seizure of Silicon Valley Bank and Signature Bank.

Analysts at UBS wrote that banking stocks would “truly settle only after the market feels as if there is a longer-term solution” to First Republic’s woes. (The deposits from other banks are uninsured and for an initial term of 120 days.) An index tracking the largest U.S. largest banks fell 4 percent on Friday, and has lost more than 20 percent of its value this year, versus a gain in the broader market over that period.

Before the broad panic about banks first surfaced last week, the biggest challenge facing economic policymakers was rapid inflation. Central bankers were caught between trying to tame price rises while not causing growth to stall. Those efforts suddenly appeared far more complex with the sudden prospect of successive bank runs.

In China, which is trying stabilize its economy after it stalled last year because of stringent “zero Covid” measures, the central bank on Friday evening acted to get more money in the hands of companies and consumers. It said it would reduce by a quarter-point the share of assets that Chinese commercial banks must keep on reserve. This frees the banks to lend more money, especially to real estate developers.

Alan Rappeport, Keith Bradsher, Joe Rennison, Rob Copeland and Lauren Hirsch contributed reporting.