Banks continue slide, but there's a catch

FILE -- In this March 24, 2020 file photo, a Chase bank employee, right, cleans the branches ATMs as a customer uses another in the Flushing neighborhood of the Queens borough of New York. Shares of some banks are falling in premarket trading on Friday, March 10, 2023, following SVB Financial Group's announcement that it plans to raise up to $1.75 billion in order to strengthen its position amid concerns about higher interest rates and the economy. The banking sector is in a retreat, as the Federal Reserve fights inflation continues to weigh heavily on a number of banks that cater to the tech sector, as it has been for a long time, according to File ASSOCIATED PRESS.

The parent of Silicon Valley Bank, SVB Financial Group, lost 60% of its value on Thursday after announcing plans to raise up to $1.75 billion in order to strengthen its capital position amid concerns about higher interest rates and the economy. Major financial institutions like Bank of America, Citigroup, and JPMorgan were not immune, falling between 4% and 6%.

The sell off continues before the opening bell Friday. Silicon Valley plunged sharply and was extraordinarily volatile before trading was stopped. The banking sector is leading the way of decline, as is the banking sector.

The fight by the U.S. Federal ReserveFederal Reserve against inflation is what drives the sector to anxiety.

The value of bonds, typically a stable asset, is starting to fall as the Fed raises its benchmark interest rate. That is not typically a problem because the declines lead to unrealized losses or losses that are not counted against them when calculating the capital cushion, which banks can use if there is a downturn in the future.

When depositors start to withdraw their money, banks sometimes have to sell bonds before they mature to cover the exodus of deposits.

Raymond James analyst David Long said that there was a need for a large-scale sale of securities from its holding-to- maturity portfolio if rates move materially higher than the current forward curve.

Larger banks don't face the same level of threat, but the falling value of bonds can affect their margins. That has helped drive the sector lower this week.

Banks like Bank of America and JPMorgan pulled out of an early slump due to data released Friday by the Labor Department, but regional banks, particularly those with heavy exposure to the tech industry, were in decline.

It has been a bruising week. The share of major banks is down between 7% and 12% this week.