Global banking tremors ripple through Europe and beyond
The epicenter of the market shock that weighed on major Spanish banks this week is far from the city center of Madrid. Unicaja faced losses reaching up to $1.8 billion as liquidity strains from Silicon Valley Bank, a small U.S. startup lender, sparked a global banking scare. The initial hits were felt in the United States where the four largest banks saw about $52 billion wiped from their shares on the same day. The S&P 500 Banks Sub-Index slid about 7.5%, and this downward momentum quickly crossed the Atlantic as Europe joined the rout.
Spain’s Stoxx 600 Banks index dropped as much as 4.5 percent on Friday, reflecting the broader fear. In early trading, Santander slipped up to 6.5 percent, Sabadell shed 5.72 percent, and Unicaja declined by 5.14 percent. By session close, Sabadell led the losses among major Spanish lenders with a drop of 5.26 percent, followed by Santander at 4.55 percent, Bankinter at 4.24 percent, and BBVA at 3.75 percent. The broader market index endured a 1.69 percent net decline, while the EuroStoxx 600 closed down 1.61 percent.
Germany’s banking sector also fell, with Deutsche Bank dropping as much as eight percent, Italy’s Banca Generali losing around three percent, and France’s Crédit Agricole sliding up to three percent. Asian markets did not escape the pressure either. The yen weakened and Japanese government bond yields declined in response to the global sentiment. The natural question arises: how could a California liquidity crunch depress Old World valuations?
The answer lies in investor fear that SVB’s problems could be a precursor for a wider banking sector vulnerability. The movement of money in response to higher interest rates also played a key role. When rates rise, the price of money increases, and the valuation of many bank-held assets can fall, particularly those bonds already owned when money was cheaper. Banks hold these assets in portfolios and their value shifts as market conditions change. At the same time, higher rates boosted yields on treasuries and government securities, which often attract savers away from traditional bank deposits. That shift reduces the funding base for banks and pressures earnings from lending, the core business for traditional banks.
Imagine buying a home for 100,000 euros in a neighborhood that then deteriorates. If a quick sale is needed, the price might fall sharply. The same logic applies to banks: riskier liquidity profiles can force asset sales at lower prices and tighten access to funding, leading to liquidity strains and broader financial stress across the system.
This was the scenario for SVB. The bank faced a liquidity crisis after attempting to unload bonds from its portfolio. It sold about $21 billion in securities but still could not meet withdrawal demands. The firm sought to raise roughly $2.25 billion in new capital and reported an $1.8 billion loss. As Darío Garcia of XTB noted, the market appears to be pricing in depreciated bank portfolios and rising uncertainty about the health of each institution, prompting investors to retreat from banking stocks. The stock remained volatile as the week progressed, with further declines during electronic trading ahead of the U.S. market open and a temporary halt in listing activities.
Reports from market watchers indicated that SVB was in talks to pursue a sale after capital-raising efforts faltered. Sources cited by CNBC suggested discussions included bringing in consultants to explore potential strategic options. The unfolding events prompted rapid consideration of options, including possible interventions or bailouts, to stabilize confidence in the sector and to prevent a broader credit crunch from taking shape.
Analysts and investors now watch closely how regulators and market participants respond to the evolving situation. The goal is to determine whether this stress test will reveal systemic risks or isolated liquidity vulnerabilities tied to specific institutions. As the narrative continues, the balance between higher interest margins and the demand for safer, liquid assets remains central to the outlook for both U.S. and European banks, shaping decisions on risk, capital, and the broader economic trajectory.