Battered Japanese bank stocks clawed back some of their heavy losses on Wednesday, as regulators and financial executives hosed down investor concerns about contagion after the collapse of Silicon Valley Bank (SVB).
Markets and financial authorities remained on edge, however, with U.S. deposit holders seeking the safety of larger banks amid growing worries about the health of smaller institutions and the prospect of more failures in the sector.
Moody’s Investors Service on Tuesday revised its outlook on the U.S. banking system to “negative” from “stable”, citing heightened risks for the sector.
Focus is also shifting to the possibility of tighter regulation in the U.S. banking sector, particularly for mid-tier banks such as SVB SIVB.O and New York-based Signature BankSBNY.O, whose collapses last week roiled financial markets.
Some calm had returned to Wall Street on Tuesday, which shored up Asian markets on Wednesday, as volatility .VIX fell and bargain hunters began circling the assets of the fallen SVB.
“In the near term we have instilled some stability, but I honestly don’t know if it is stability or the appearance of stability, because I certainly do not know what is occurring behind the scenes at the deposit base of several thousand small to medium sized banks across the United States,” said John Briggs, global head of economics and markets strategy at NatWest Markets.
Japan’s Tokyo Stock Exchange banks index .IBNKS.T jumped more than 4% on Wednesday, after three straight days of heavy selling and the sharpest drop since the days after the 2011 earthquake and tsunami struck Japan.
Investors had been particularly concerned about the huge bond holdings, particularly in U.S. Treasuries, of Japanese lenders.
However, Japanese finance minister Shunichi Suzuki said on Wednesday differences in the structure of bank deposits, meant local banks wouldn’t face incidents similar to SVB’s collapse.
“Risk sentiment appears to be normalising from the SVB-induced panic,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
The MSCI Asia ex-Japan Financials Index .MIAX0FN00PUS was last 1% higher, reversing some of Tuesday’s 2% fall.
Bruised U.S. bank stocks had on Tuesday regained some ground following a rough start to the week, aided by news that private equity and buyout giants were looking to scoop up some of SVB’s assets, leaving investors hopeful that efforts to shore up confidence would avert a wider financial crisis.