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3 ETF Areas Likely to be in Tight Spots Post Banking Crisis
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Last week was the worst this year for Wall Street as the banking industry witnessed the biggest meltdown since 2008. U.S. bank stocks suffered the sharpest decline in nearly three years, with the KBW Nasdaq Bank Index tumbling as much as 24.8% in the past five days. The contagion has spread entirely in the global stock market. The four largest U.S. banks lost a combined market cap of more than $50 billion.
What Happened in the Banking Industry
On Wednesday evening, Silicon Valley Bank announced it was planning to raise $2 billion to solidify its financial position. It also indicated that it had seen an increase in startup clients drawing down their deposits. On Thursday, Silicon Valley Bank crashed by 60%, sending ripple effects across the banking industry.
Silicon Valley Bank caters to risky zones like start-ups, venture capital, and early-stage tech. On Friday morning, CNBC reported that SVB failed to raise the cash. By noon Friday, US regulators shut the bank down. According to the FDIC, this is the second-largest bank failure in U.S. history.
Then, on Friday, Signature Bank customers withdrew more than $10 billion in deposits, a board member told CNBC. This led U.S. regulators to seize Signature Bank in third-biggest bank failure in U.S. history. There have been fears that uninsured deposits could lose value.
The contagion spread into other banks like First Republic Bank which dropped moer than 60% yesterday. First Republic said on Sunday that it had received additional liquidity from the Federal Reserve and JPMorgan Chase. Still, banking stock carnage continued.
Investors should note that earlier this month,Silvergate Capital, a crypto-centric bank, started to plunge from already deeply discounted levels for obvious reasons, as cryptocurrency is no longer in favor thanks to rising rates. Finally, on Wednesday, the company announced that it would be conducting a voluntary liquidation and shutting down its doors. The firm had transactions with Sam Bankman Fried’s doomed crypto exchange FTX.
The collapse of these banks can be seen as isolated incidents. While Silvergate was associated with the hyper-speculative crypto space, Silicon Valley Bank was involved with the struggling tech space, that too, newbie tech companies and not the mature ones.
Against this backdrop, below, we highlight a few ETF areas that are in great danger post banking crisis.
After the financial crisis in 2008, the banking sector had faced stringent regulatory norms. The norms included stringent capital requirements, which meant banks must keep a certain portion of reserves for moments of crisis, as well as stipulations about how diversified their businesses must be.
But Silicon Valley Bank and other regional banks do not have the same regulatory scrutiny. In 2018, President Donald J. Trump signed a bill that lessened the oversight for many regional banks, per a New York Times article. Hence, unlike big banks, regional banks are in greater danger.
Silicon Valley Bank was an active lender in the biotech industry — a regulation-laden industry where companies often devote years and billions of dollars before meeting profitability. Per its fourth-quarter 2022 earnings report, 12% of the bank’s $173 billion in deposits was attributed to the healthcare and biotech sector.
The biotech industry often faces a funding crisis as even after spending a lot of time and funds, several drugs often fail to attain FDA approval. The bank was in the pink in 2020 and 2021 when funding to healthcare-related sectors boomed.
Cryptocurrency – Global X Blockchain ETF (BKCH - Free Report)
The dual disaster of Silvergate Capital and Silicon Valley Bank shattered the blockchain and bitcoin industry initially. Digital asset investment products saw the fifth succssive week of outflows totalling $255 million. The latest weekly outflows represented the largest single weekly outflows on record marking 1.0% of total assets under management, per etf.com.
Though the crypto industry is trying to recoup losses, the industry will likely be facing the wrath of investors depending on the market conditions and Fed actions.
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3 ETF Areas Likely to be in Tight Spots Post Banking Crisis
Last week was the worst this year for Wall Street as the banking industry witnessed the biggest meltdown since 2008. U.S. bank stocks suffered the sharpest decline in nearly three years, with the KBW Nasdaq Bank Index tumbling as much as 24.8% in the past five days. The contagion has spread entirely in the global stock market. The four largest U.S. banks lost a combined market cap of more than $50 billion.
What Happened in the Banking Industry
On Wednesday evening, Silicon Valley Bank announced it was planning to raise $2 billion to solidify its financial position. It also indicated that it had seen an increase in startup clients drawing down their deposits. On Thursday, Silicon Valley Bank crashed by 60%, sending ripple effects across the banking industry.
Silicon Valley Bank caters to risky zones like start-ups, venture capital, and early-stage tech. On Friday morning, CNBC reported that SVB failed to raise the cash. By noon Friday, US regulators shut the bank down. According to the FDIC, this is the second-largest bank failure in U.S. history.
Then, on Friday, Signature Bank customers withdrew more than $10 billion in deposits, a board member told CNBC. This led U.S. regulators to seize Signature Bank in third-biggest bank failure in U.S. history. There have been fears that uninsured deposits could lose value.
The contagion spread into other banks like First Republic Bank which dropped moer than 60% yesterday. First Republic said on Sunday that it had received additional liquidity from the Federal Reserve and JPMorgan Chase. Still, banking stock carnage continued.
Investors should note that earlier this month,Silvergate Capital, a crypto-centric bank, started to plunge from already deeply discounted levels for obvious reasons, as cryptocurrency is no longer in favor thanks to rising rates. Finally, on Wednesday, the company announced that it would be conducting a voluntary liquidation and shutting down its doors. The firm had transactions with Sam Bankman Fried’s doomed crypto exchange FTX.
The collapse of these banks can be seen as isolated incidents. While Silvergate was associated with the hyper-speculative crypto space, Silicon Valley Bank was involved with the struggling tech space, that too, newbie tech companies and not the mature ones.
Against this backdrop, below, we highlight a few ETF areas that are in great danger post banking crisis.
Regional Banks – SPDR S&P Regional Banking ETF (KRE - Free Report)
After the financial crisis in 2008, the banking sector had faced stringent regulatory norms. The norms included stringent capital requirements, which meant banks must keep a certain portion of reserves for moments of crisis, as well as stipulations about how diversified their businesses must be.
But Silicon Valley Bank and other regional banks do not have the same regulatory scrutiny. In 2018, President Donald J. Trump signed a bill that lessened the oversight for many regional banks, per a New York Times article. Hence, unlike big banks, regional banks are in greater danger.
Biotech – Virtus LifeSci Biotech Clinical Trials ETF (BBC - Free Report)
Silicon Valley Bank was an active lender in the biotech industry — a regulation-laden industry where companies often devote years and billions of dollars before meeting profitability. Per its fourth-quarter 2022 earnings report, 12% of the bank’s $173 billion in deposits was attributed to the healthcare and biotech sector.
The biotech industry often faces a funding crisis as even after spending a lot of time and funds, several drugs often fail to attain FDA approval. The bank was in the pink in 2020 and 2021 when funding to healthcare-related sectors boomed.
Cryptocurrency – Global X Blockchain ETF (BKCH - Free Report)
The dual disaster of Silvergate Capital and Silicon Valley Bank shattered the blockchain and bitcoin industry initially. Digital asset investment products saw the fifth succssive week of outflows totalling $255 million. The latest weekly outflows represented the largest single weekly outflows on record marking 1.0% of total assets under management, per etf.com.
Though the crypto industry is trying to recoup losses, the industry will likely be facing the wrath of investors depending on the market conditions and Fed actions.