US banking crisis risks becoming ‘self-fulfilling prophecy’, analysts say
The crisis engulfing regional US banks risks becoming a “self-fulfilling prophecy” as investors take flight from lenders seen as increasingly risky bets triggering even deeper losses, analysts have warned.
Shares in US banks were pummelled this week amid investor concerns that there will be more collapses, after a string of failures.
The pound hit an 11-month high against the dollar, at $1.263, on Friday as fears over prospects for the US economy and the health of US regional banks gripped markets. Gold prices rose as investors sought safe haven assets.
The crisis, which began in March with the collapse of Silicon Valley Bank, threatens to deepen as hedge funds bet that shares will fall further.
Jaret Seiberg, an analyst at the investment bank TD Cowen, said: “We believe the banks are having their GameStop-like moment, where social media is amplifying non-traditional approaches to assessing solvency.
“This creates a self-fulfilling prophecy that pressures stock prices, which then leads to more questions.”
In 2021, amateur traders on Reddit pushed up the price of “meme stocks” such as GameStop and AMC Entertainment in a deliberate offensive to burn professional short sellers who were betting against the unloved stocks.
Russ Mould, the investment director at AJ Bell, said: “Markets will always look for the weakest link and then attack it if the mood takes them.
“It can be a self-fulfilling prophecy. Shares go down, people pull their money out and the hedge funds pile in.”
The collapse of Silicon Valley Bank, followed by Signature Bank and then First Republic this week, has triggered a sell-off in regional US banking stocks, as lenders struggle to cope with the sharp rise in interest rates enacted by central banks in an attempt to
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