The banking sector remains the center of attention for international investors after fears spiked earlier that bank failures could ignite a large-scale financial crisis.
However, the rapid intervention from regulators in the US and Europe has helped limit damage and helped calm investors and clients.
Wael Makarem, Senior Market Strategist – MENA at Exness said, “As a result, volatility has been declining over the last couple of days with confidence returning. However, regulators’ actions will remain under scrutiny with the Federal Reserve and FDIC testifying before congress while a review of its oversight systems is being conducted.
Independent investigations could follow suit and could lead to an overhaul of regulatory frameworks, eventually adding to banks’ operating costs. This could come at a time when financial institutions are managing risks in a rising interest rate environment, putting pressure on bond holdings valuation.
While the US central bank could soften its stance in regard to monetary policy in light of a potential credit crunch, more banks could remain under pressure while interest rates increase for the remainder of the year.
In this regard, larger banks that are deemed too big to fail could benefit from any new incidents to the detriment of smaller institutions with depositors ready to move their funds rapidly.
As a result, banks’ stock prices could be sensitive to their ability to capture and retain depositors which could add risks and eventually squeeze profit margin among regional banks.
In Europe, investors will continue to monitor the developments of the UBS takeover of Credit Suisse. The Swiss bank has taken steps to ensure that absorbing its competitor is done in a proper way but some risks could remain for shareholders and the wider market and could reverberate on other banks.
Other large European banks could see more scrutiny while their credit default swaps have skyrocketed and could remain elevated for the time being. Some banks could also take a hit as they come under investigation by French authorities.”