(Adds that the Fed declined to comment in the sixth paragraph, demands of US mid-sized banks to regulators, market context from 12.)
By Stefania Spezzati and Elisa Martinuzzi
LONDON, March 19 (Reuters) – At least two major European banks are examining contagion scenarios in the region’s banking sector and are looking to the Federal Reserve and the ECB for stronger signals of support, two executives told Reuters superiors close to the discussions. .
The fallout from the crisis of confidence in Credit Suisse Group AG and the failure of two U.S. banks could ripple through the financial system next week, the two executives told Reuters on Sunday.
The two banks held their own internal deliberations on how soon the European Central Bank should step in to highlight banks’ resilience, particularly their capital and liquidity positions, the sources said.
One of the purposes of these internal discussions is whether such statements could create even more concern if made too soon, the people said.
Executives said their banks and the sector are well capitalized and liquidity is strong, but they fear the crisis in confidence could wash away more lenders.
One of the executives said the Federal Reserve may have to act first as the failures of Silicon Valley Bank and Signature Bank in the United States earlier this month raised concerns in Europe.
The ECB declined to comment. The Fed did not comment.
Further liquidation of banks could erode depositors’ confidence in their lenders. Since the collapse of US banks, savers have shifted funds to bigger lenders in a flight to safety that is undermining the industry’s ability to lend.
In Europe, companies still rely mainly on bank loans to finance their growth, which means that the real economy is more sensitive to banks.
The ECB stuck to plans to hike rates by half a point on Thursday to contain inflation. But he stressed that he was monitoring market tensions and would react if necessary to preserve price stability and financial stability in the currency bloc.
As one of the world’s 30 systemically important banks, Credit Suisse’s problems could affect the entire financial system, industry executives said.
US and European bank stocks have fallen 22% and 17% respectively so far in March, putting them on track for their biggest monthly declines since March 2020, when the COVID-19 crisis rocked markets.
As regulators try to halt the loss of confidence in Credit Suisse before markets reopen on Monday, a source said talks with UBS Group AG are facing significant hurdles and 10,000 jobs may have to be cut if the two banks were merging, Reuters reported.
The Swiss lender last week became the first global bank to receive an emergency liquidity line since the financial crisis.
In a sign of further tensions, a coalition of mid-size U.S. banks, the Mid-Size Bank Coalition of America (MBCA), has asked regulators to expand FDIC insurance to all deposits for the next two years, Bloomberg reported. News Saturday citing a letter from the MBCA. to regulators.
The letter says the extension of insurance will stop the outflow of deposits from smaller banks, thereby helping to stabilize the banking sector, according to the report.
The US, UK and Swiss central banks are all holding meetings scheduled for this week.
Despite still-high inflation, the banking turmoil has forced traders to quickly revise expectations of further rate hikes, as interest rates that are too high can lead to lower demand for new loans, hurting bank profits.
Markets are pricing just a 60% chance of a quarter-point rate hike at the Fed’s meeting this week, a sharp turnaround from expectations for a larger half-point move earlier this month. (Additional reporting by Balazs Koranyi, Dan Burns and Iain Withers. Writing by Dhara Ranasinghe; Editing by Paritosh Bansal and Barbara Lewis)
