The stock market opened with steep losses Wednesday as concerns about the health of Credit Suisse triggered fears of a broader banking crisis.
The Dow Jones Industrial Average opened with a loss 1.5 percent Wednesday, a decline of almost 500 points after the opening bell. The S&P 500 index opened with a loss of 1.4 percent and the Nasdaq composite opened with a loss of 1.1 percent.
Stock futures began selling off before the stock market opened Wednesday as U.S. traders watched shares of Credit Suisse plunge more than 30 percent in overseas trading, according to CNBC. Investors began to lose confidence in the bank after the chairman of the Saudi National Bank, Credit Suisse’s largest investor, told Reuters that the Saudi central bank would not boost its investment in the troubled Swiss firm.
Credit Suisse, Europe’s second largest bank, has faltered under years of scandals and financial woes. Credit Suisse also operates in the U.S. and is subject to the strictest Federal Reserve supervision and stress tests. Silicon Valley Bank, which collapsed Friday and set off a global banking scare, was exempted from those rules under a 2018 bipartisan law signed by former President Trump.
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Credit Suisse chairman Axel Lehmann said Wednesday at a conference in Saudi Arabia that the bank was in good financial shape, according to The Wall Street Journal.
The Credit Suisse selloff is the latest aftershock of the Silicon Valley collapse to hit financial markets. After falling through most of Monday, bank stocks rebounded Tuesday as the emergency actions taken by federal officials over the weekend appeared to reassure investors.
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Even so, the new concerns over Credit Suisse quickly spread through markets Wednesday, leading to losses for Goldman Sachs, JPMorgan Chase, American Express and a slew of other banks as the market opened.
Shares of First Republic Bank, another California-based bank with tens of billions of dollars in uninsured deposits, were down more than 15 percent after the opening bell. First Republic is one of six regional banks who may be downgraded by Moody’s Analytics over concerns about their balance sheets.
President Biden has called on Congress to bolster banking regulations after the Federal Reserve, Federal Deposit Insurance Corp. and Treasury Department took emergency action this weekend to snuff out a potential banking panic.
The FDIC took over Silicon Valley Bank and Signature Bank over the weekend and pledged to give customers of both failed banks full access to all of their deposits. While the vast majority of deposits at Silicon Valley and Signature were not covered by the FDIC’s $250,000 per account threshold for insurance, the agency said it would back up all of the deposits at each bank for financial stability concerns.
The Fed also opened an emergency lending facility in which banks can exchange Treasury bonds or other securities for low-interest-rate loans. The program is intended to make sure banks have enough cash on hand to cover deposits without having to sell bonds and other securities, which have dropped in value, for a loss on the open market.
Those emergency actions appeared to reassure investors Tuesday, but Wall Street experts warn that a fundamental fix may be necessary.
“While the actions taken by the Fed, Treasury, and FDIC have helped to stabilize financial markets and are likely to slow deposit outflows, they stopped short of a guarantee of all deposits that some market participants might have anticipated,” wrote Alec Phillips of Goldman Sachs in a Tuesday research note.
“Covering uninsured depositors on a case-by-case basis might signal an implicit guarantee to depositors, but only Congress can provide an explicit guarantee on all deposits.”
—Updated at 10:25 a.m.