President Joe Biden has assured US taxpayers that they will not have to pay for losses in the banking sector, after French and German authorities said that recent collapse of several US banks pose no danger to European financial institutions.
The collapse of Silicon Valley Bank (SVB) and the failure of Signature Bank have created a wave of uncertainty in global financial circles.
On Monday, US President Joe Biden said that US taxpayers will not be asked to pay for the rescue of depositors at the failed SVB bank, assuring Americans that the crisis was "under control".
While the government will guarantee that SVB depositors get their money back, "no losses will be borne by the taxpayers," Biden said. "The money will come from the fees that banks pay into deposit insurance."
Meanwhile, European equities have tipped deep into the red. Bank shares in Italy and Switzerland have fallen particularly hard. Frankfurt and Paris stock markets have dropped by about three percent, while Milan dived almost five percent at one stage and Zurich shed 1.7 percent.
France's economy minister, Bruno Le Maire, has declared that US bank failures pose no risk of contagion for European institutions. The minister's statement has been confirmed by the French central bank. But this has not calmed nerves as investors dump banking sector assets across Europe.
Fear of contagion
Banks are leading the charge southwards with investors taking aim at Spanish and Italian lenders, suggesting that these are considered the weakest links as fears rise.
"Far from calming nerves, fear of contagion has ramped up further," according to City Index analyst Fiona Cincotta.
The crisis has sent shockwaves worldwide, with traders on red alert over further bank failures. Markets will continue to be volatile throughout the week, warned one analyst, saying traders will continue to be wary of riskier assets.
SVB is the largest retail bank to fall since the 2008 financial crisis.
The problems at SVB built up as the US Federal Reserve's interest rate hikes meant securities the bank owned were selling at a significant loss, a problem other institutions could face.
Transfer of deposits
On Sunday, New York regulators said they had closed another lender, Signature Bank. The dollar has fallen as the turmoil sparked uncertainty over the US Federal Reserve's plans to hike interest rates, while oil prices also slid.
According to a statement on SVB's now defunct website, the Federal Deposit Insurance Corporation (FDIC,) an entity created after the 1929 stock exchange collapse in the US, has "transferred all deposits — both insured and uninsured — and substantially all assets" of the SVB "to a newly created, full-service FDIC-operated 'bridge bank'.
This action is designed to protect all depositors who will have "full access to their money beginning this [Monday] morning" when the bridge bank "opens and resumes normal banking hours and activities, including online banking."
(With news agencies)