Renewed concern about the health of the banking system dragged down the stock market on Friday, suggesting that investors had little confidence that the crisis had run its course even after moves to shore up flailing lenders with injections of tens of billions of dollars.
The shares of many banks, including the recently rescued midsize lender First Republic, resumed their dizzying slide, erasing the previous day’s gains, which provided a brief moment of calm during a tumultuous week. The S&P 500 stock index fell about 1 percent in midafternoon trading.
President Biden on Friday asked Congress to grant financial regulators broad new powers to punish the executives of failed lenders. Mr. Biden’s request came a day after new data showed that banks in the United States also borrowed record amounts from the Federal Reserve to meet short-term needs, another sign of acute stresses in the financial system.
“Sentiment remains weak and investor positioning remains conservative,” said Mark Hackett, the chief of investment research at Nationwide. “However, investors should recognize that this is not a repeat of the financial crisis. It is disruptive for the industry and painful for a select group of banks and institutions but the comparison to the financial crisis is premature.”
First Republic’s shares fell more than 20 percent, erasing all of the previous day’s gains. Other regional banks, like PacWest and Western Alliance, fell more 10 percent. Credit Suisse, which received a multibillion-dollar rescue on Thursday, also lost ground in European trading.
An index tracking the largest U.S. largest banks fell 4 percent, and has lost more than 20 percent of its value this year, versus a gain in the broader market over that period. Amid all the volatility, the S&P 500 remains up for the year, at least for the moment.
On Thursday, First Republic Bank, 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 were seeing deposit levels stabilizing in small and midsize banks, and in some cases modestly rising. “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.
Mr. Biden’s appeal for new legislation would expand the regulator powers held by the Federal Deposit Insurance Corporation, which seized control of Silicon Valley Bank and Signature Bank. The proposal would allow the agency to claw back compensation from executives of failed banks, as well as bar them from taking other jobs in the financial industry.
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.
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 investors were likely to see First Republic’s rescue as a short-term fix and 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 given to First Republic from other banks are uninsured and for an initial term of 120 days.)
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. The Federal Reserve is set to meet next week to set interest rates, and some traders are betting that policymakers will leave rates unchanged, a possibility that seemed unthinkable not long ago.
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, Rob Copeland and Lauren Hirsch contributed reporting.
