The biggest sell-off in the banking sector in almost three years occurred on Wall Street on Thursday. The trigger was concerns about the health of a Californian bank, which needs a billion-dollar capital increase to cushion losses. This fuelled concerns that rising interest rates could erode banks' balance sheets across the board. The latest problem case is Silicon Valley Bank (SVB), which specializes in start-up loans and is now forced to issue $2.25 billion in young stocks to offset write-downs in its portfolio of US Treasuries and mortgage securities.

SVB shares fell by 60 percent. Just this week, the crypto bank Silvergate Capital had closed its doors, also due to massive deposit outflows. The KBW banking index fell by 7.7 percent in trading on Thursday, the strongest since June 2020. The share prices of Wall Street giants Bank of America, Wells Fargo and JPMorgan Chase also fell by at least 5 percent. Worries about the U.S. banking system also weighed on Asian stock markets on Friday. In Japan, the 225-stock Nikkei index closed 1.7 percent lower. In China, the Shanghai stock exchange was down 1.4 percent.

Fears about problems in the US banking system are also causing problems for the Dax. The German benchmark index was 1.9 percent lower at 15,342 points on Friday morning. "I think there is speculation that there are bigger problems within the U.S. banking system," said ING economist Rob Carnell in Singapore. The share price of German financial institutions also lost significantly. Deutsche Bank shares plunged by 8 percent, those of Commerzbank by 4.7 percent.

Fed sees warning signal

The problems of Silvergate and SVB highlight the pitfalls that the central banks' interest rate reversal holds for the banking sector. Investors not only in the US, but also in Europe and Germany, had bet above all on rising interest rates to mean growing returns and invested massively in bank stocks. Now the flip side of monetary tightening is becoming apparent: depositors switching banks to get more for their money, forcing banks to realize market value losses on securities.

Fed Director Michael Barr sees the turbulence surrounding the crypto bank Silvergate as a warning signal for the financial sector. The US Federal Reserve's vice chairman with responsibility for banking supervision said on Thursday that recent shocks in cybercurrency markets made it clear that the sector could still pose a risk to traditional banks. But the impact is limited. US banking supervisors have done a lot in recent months to ensure that financial institutions approach the crypto sector with caution.

This also included the warning that deposits in Bitcoin & Co can be particularly volatile. "These liquidity concerns are particularly acute for banks that fund a significant portion of their balance sheets with such deposits," Barr said.