UBS Agrees to Buy Credit Suisse; Smaller Banks' Critical Role in U.S. Economy; Join Our Q&A on Central Banks and Banking Turmoil Today By James Christie
Good day. U.S. stock futures wavered and investors bought up government bonds and gold this morning after UBS agreed to take over its longtime rival Credit Suisse for more than $3 billion, pushed into the biggest banking deal in years by regulators eager to halt a dangerous decline in confidence in the global banking system. As markets grapple with the potential for spillover from the failures of Silicon Valley Bank and Signature Bank and moves to rescue First Republic Bank, Federal Reserve policy makers are set to announce their latest interest-rate decision on Wednesday. One area of focus in the industry is smaller banks, crucial drivers of credit growth that fuels the economy. According to the Fed, banks smaller than the top 25 largest account for around 38% of all outstanding loans. Meanwhile today, former U.S. Deputy National Security Advisor Daleep Singh joins WSJ Chief Economics Correspondent Nick Timiraos for a Live Q&A to discuss how central banks could be affected by the banking crisis. The event starts at 2 p.m. ET and you may submit questions via this link .
Now on to today's news and analysis.
Top News UBS Agrees to Buy Credit Suisse for More Than $3 Billion
The deal between the twin pillars of Swiss finance is the first megamerger of systemically important global banks since the 2008 financial crisis when institutions across the banking landscape were carved up and matched with rivals, often at the behest of regulators.
The Swiss government said it would provide more than $9 billion to backstop some losses that UBS may incur by taking over Credit Suisse. The Swiss National Bank also provided more than $100 billion of liquidity to UBS to help facilitate the deal.
Credit Suisse Bond-Wipeout Threatens $250 Billion Market Swiss Banking Giant Succumbs to Crisis Signature Bank's Quirky Customer Mix Hastened Fall Fed Raised Concerns About SVB's Risk Management in 2019 First Republic Bank Looms Large for Regulators After Credit Suisse Sale Live Coverage: Global Bank Stocks Lower Smaller Banks' Distress Raises Recession Risks
Main Street businesses and families are likely to find it harder to get loans because of turmoil in the banking industry, denting economic growth and raising the risk of a recession.
"The risk in terms of the spark from SVB is real," said Greg Daco, chief economist at EY-Parthenon, a strategy consulting unit of Ernst & Young LLP. The collapse of Silicon Valley Bank set off fear among depositors that led to the failure of Signature Bank and the move to rescue First Republic Bank.
"Once there is stress in a particular set of institutions, those institutions and those that have similarities will tend to be more cautious in their lending," he said. "We're likely to be in this state for a prolonged period."
Economy This Week: U.S. Interest Rates and Housing Market in Focus
Economic highlights this week include the existing-home sales report for February and the Federal Reserve announcing its latest interest-rate decision following a two-day meeting amid banking-industry turbulence and high inflation.
WSJ Q&A Ahead of the Fed: The State of the Economy
Ahead of the Federal Reserve's second policy meeting of the year, former U.S. Deputy National Security Advisor Daleep Singh joins the Journal's Chief Economics Correspondent Nick Timiraos to discuss how the banking crisis and economic data could impact central bank actions this spring. The live Q&A begins at 2:00 pm ET today. Join and ask questions here .
How Higher Interest Rates Caught Up With Banks
For much of the early part of 2023, the U.S. economy seemed to be humming along. Inflation was hot, but continuing to ease. The labor market and consumer spending remained resilient. Then the music stopped .
U.S. Economy Biden's 'Go It Alone' Trade Deals Draw Warnings From Congress
Tensions have boiled over as the White House pushes to forge a free-trade deal on critical minerals to resolve a dispute with the European Union about electric-vehicle subsidies, the latest such pacts skirting congressional approval .
Fear of Layoffs Is Changing How People Buy Homes
More home buyers are putting an escape clause into contracts: If they lose their jobs before closing, they can back out. Known as an employment contingency , the provisions appeal to workers rattled by recent waves of layoffs.
Small Firms Face Big Tax Bills From Research-Deduction Change
Laura Lynn Gonzalez expected a tax refund this year after her two-employee data-visualization company suffered a $30,000 loss. Instead, she faces a $100,000 federal tax bill stemming from a piece of the 2017 tax law now taking effect .
Corporate Bankruptcies Rise as Interest Rates, Inflation Sap Firms
Troubled companies across industries have been filing for bankruptcy at a faster pace this year than last, a boomlet that follows a period of record inflation and one of the quickest interest rate-hike cycles in U.S. history.
Key Developments Around the World Putin Proves an Unpredictable Partner for Xi as Nations Cement Ties
Xi Jinping's visit to Russia this week aims to bolster ties with a partner increasingly reliant on Beijing, but his leverage over Vladimir Putin remains limited as Moscow advances its own goals in Ukraine and elsewhere.
Putin Harshly Criticizes West as Xi Strikes Softer Tone Putin Makes First Known Trip to Seized Mariupol On China-Russia Border, Xi-Putin Alliance Shows Signs of Fraying Xi Arrives in Moscow as Beijing Seeks to Position Itself as a Peacemaker Europe Moves to Revive Mining to Cut Reliance on China
"If Europe doesn't become more self-sufficient in minerals and metals, it might soon find itself at the mercy of foreign governments, like what happened with Russian gas," said Cris Moreno of Vulcan Energy Resources Ltd.
Europe's Drought Deepens, Threatening Agriculture and Industries
Europe is in the midst of a drought hitting its economy, from agriculture and power generation to shipping. It began last summer with hot weather and a lack of rain, and has continued with long dry spells in Western Europe.
Financial Regulation Roundup Biden Asks Congress for More Authority to Punish Bank Executives
President Biden called on Congress to toughen penalties on bank executives deemed responsible for the collapse of financial institutions, as the administration seeks to shore up confidence in the banking system.
Warren Calls for Investigation of SVB and Signature Bank Collapses
In a letter to the inspectors general of federal financial regulators, Sen. Elizabeth Warren called for probes of the management and oversight of Silicon Valley Bank and Signature Bank ahead of their collapses this month.
Forward Guidance Monday (all times ET)
10 a.m.: ECB's Lagarde speaks to Committee on Economic and Monetary Affairs of European Parliament
Tuesday
8:30 a.m.: Canada consumer price index for February; Comments by ECB's Lagarde in pre-recorded panel 'CBDCs: Keeping momentum in uncertain times' at BIS Innovation Summit 2023
9:30 a.m.: ECB's Enria presents ECB annual report on supervisory activities for 2022 to Committee on Economic and Monetary Affairs of European Parliament
10 a.m.: U.S. existing home sales for February
11:30 a.m.: ECB's Enria discusses implications of Silicon Valley Bank failure for financial stability in Europe, at Committee on Economic and Monetary Affairs of European Parliament
Research U.K. Core Services Inflation Could Be Below BOE's Expectations
The U.K.'s February core services inflation, which is a more appropriate measure of domestically generated inflation, could fall below the Bank of England's forecast of 6.9% after a considerable drop in January to 5.3%, Barclays economist Iaroslav Shelepko and analyst Abbas Khan write in a note. "We expect February core services inflation to print well below the BOE expectation following a large downside surprise in January, " they write. Nonetheless, Barclays' February headline inflation forecast at 10.1% is higher than the BOE forecast of 9.9%. Food and services are likely to push up U.K. inflation while goods and energy prices are expected to partly offset that, the analysts write.
-Miriam Mukuru
Dozens of Banks May Have Risks Similar to Silicon Valley Bank
Silicon Valley Bank failed after rising interest rates reduced the value of its assets and worried customers scrambled to withdraw uninsured deposits. In a new study, economists said they found 186 banks that may be prone to similar risks.
In a paper posted to the Social Science Research Network, the economists estimated how much market value individual U.S. banks' asset books have lost during the Federal Reserve's rapid interest rate-increasing campaign. The value of such assets, which often include Treasury notes and mortgage loans, can fall when new bonds have higher rates.
The economists also examined the proportion of banks' funding that comes from uninsured depositors, or accounts with more than $250,000. They estimated that there are 186 U.S. banks where, if half of uninsured depositors quickly withdrew their funds, even insured depositors could face impairments because the bank wouldn't have enough assets to make all depositors whole, potentially forcing the FDIC to step in.
The research carries an important caveat: It does not take into account hedging, which may help protect many banks against rising interest rates.
"Our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization," the economists wrote.
-Matt Grossman
Commentary What Gets Lost When You Rescue Markets
The ultimate legacy of excess belief in the boundless brainpower of regulators is overconfidence : too many people thinking their money is safer than it really is and taking bigger risks than they should, Jason Zweig writes.
Local Banks Could Leave Gaps That Are Hard to Fill
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03-20-23 0716ET
