Markets close lower after massive bank failure and rate hike fears

Silicon Valley Bank, a tech lender facing sudden financial trouble, was shut down on Friday, marking a swift downfall for a major bank. 

The Federal Deposit Insurance Corporation said in a statement that Silicon Valley Bank was closed by California regulators, which appointed the FDIC as receiver.

Silicon Valley Bank had about $209 billion in total assets and $175 billion in total deposits as of the end of last year, according to the FDIC. 

The FDIC said all insured depositors will have “full access” to their insured deposits by no later than Monday morning. The FDIC added it will pay uninsured depositors an “advance dividend within the next week” and they will receive a receivership certificate for the remaining amount of their uninsured funds.

To protect depositors, the FDIC said it created the Deposit Insurance National Bank of Santa Clara, which will hold all insured deposits of Silicon Valley National Bank.

The FDIC urged customers with accounts in excess of $250,000 to contact the FDIC. 

All three major indexes tumbled Friday after digesting a mixed jobs report and volatility in banking shares after the collapse of Santa Clara, California-based tech lender SVB.

The Dow fell 72 points, or 0.2%. The S&P 500 fell by 0.4% and the Nasdaq slipped 0.5% in morning trading.

Hiring slowed to 311,000 jobs in February, according to the Labor Department. While that's a cooldown from January's red-hot numbers, it shows that the labor market remains robust — meaning a larger-than-expected rate hike at the Federal Reserve's next meeting isn't off the table.

At the same time, bank stocks teetered on Friday after SVB was put into receivership in the wake of falling deposits.

"The idea that a large regional bank with deep roots in a very key sector of the economy ... could just sort of all of a sudden, out of the blue, reveal billions of dollars of problems, really raises the question of banking contagion, and that's a really scary scenario for financial markets. And so you're going to get mood swings," said Steve Sosnick, chief strategist at Interactive Brokers.

President Joe Biden touted the February jobs report late Friday morning, saying it was proof "our economic plan is working."

In remarks from the White House, Biden was flanked by his top two economic advisers, Cecilia Rouse of the Council of Economic Advisers and, for the first time, Lael Brainard, former Federal Reserve Vice Chair, in her new role as head of the National Economic Council.

The president nodded toward Tuesday's upcoming inflation report as another economic metric that would show progress.

Biden predicted that next week's Consumer Price Index inflation report will be "in solid shape." January's CPI report showed monthly prices rose by the most in three months. However, the same report also showed that inflation continued to slow on a year-over-year basis and hit 6.4%, according to the Bureau of Labor Statistics. That’s down from December’s 6.5% but still far from the Federal Reserve's 2% target.

In a tweet Friday morning, Biden wrote: "I'm happy to report that our economy added 311,000 jobs last month – that's on top of the more than half a million the month before. And we did it while maintaining the lowest unemployment rate in more than 50 years."

However, he noted that the biggest threat to the US economy is not inflation but the debt limit.

A breach of the US debt ceiling risks sparking a 2008-style economic catastrophe that wipes out millions of jobs and sets America back for generations, Moody’s Analytics warned on Tuesday.

Bank run fears continued on Wall Street following SVB's Thursday announcement that it would sell billions of dollars of assets to cover rapidly declining customer deposits and make its customers whole. Reports that the bank was exploring a sale exacerbated those concerns.

Small and regional banks are feeling the brunt of the panic: The SPDR S&P Regional Banking ETF (KRE) was down 4.4% on Friday.

Several regional bank stocks swung wildly, leading to temporary pauses in trading as they tripped circuit breakers to prevent stocks from rising or falling too quickly.

Many stocks were jerked beyond their price band limits: PacWest Bancorp, Signature Bank, First Republic Bank and Western Alliance were all bouncing in and out of mandatory trading pauses on Friday morning.

Signature Bank was down around 15% and First Republic was down 22% when trading of the stocks last resumed.

Former Treasury Secretary Larry Summers, meanwhile, told Bloomberg News on Friday that he sees "no systemic risk" from SVB if their depositors were protected.

Treasury Secretary Janet Yellen said Friday she’s paying close attention to the financial stress impacting Silicon Valley Bank and other lenders.

“You mention Silicon Valley Bank. There are recent developments that concern a few banks that I’m monitoring very carefully,” Yellen told lawmakers in response to a question at a hearing about the company.

“When banks experience financial losses, it is and should be a matter of concern,” Yellen said during the House Ways and Means Committee hearing. 

SVB Financial Group is reportedly exploring a sale after selling billions of dollars of assets to make its customers whole and sparking a panic on Wall Street this week.

Reuters and CNBC, citing people familiar with the matter, reported that the financially strapped bank was considering a potential sale to a larger institution. SVB didn't immediately respond to CNN's request for comment. 

Shares of SVB were halted Friday morning after falling more than 60% in premarket trading. The stock tumbled 60% Thursday after the bank said it had to sell a portfolio of US Treasuries and $1.75 billion in shares at a loss to cover rapidly declining customer deposits — essentially facing a run on the bank. 

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Market participants are betting the Federal Reserve will now approve a quarter-point rate hike at its next policymaking meeting on March 21-22, according to the CME FedWatch tool.

That's a reversal from Tuesday, when hawkish comments from Fed Chair Jerome Powell caused expectations to flip, with markets moving to anticipate a half-point rate hike over the quarter-point that had been priced in for the past few weeks.

Attention now turns to next week's inflation reports, with the Consumer Price Index due on Tuesday morning and the Producer Price Index on Wednesday. These are the last pieces of major economic data that Fed officials will review before their two-day meeting.

"To be sure, next week's CPI and PPI reports, should they come in hotter than expected, could push the 50 basis point [half point] bet higher, but this morning's print gives the Fed breathing room," said Quincy Krosby, chief global strategist at LPL Financial.

Investors were mostly reacting to a less-than-scorching jobs number and slowing wage growth, which offered hope that overall inflation may be decelerating.

The Treasury Department told CNN on Friday it’s monitoring the situation as financial pressure at the parent of Silicon Valley Bank raise concerns about the broader health of America’s banks.

“Treasury is aware of recent developments. The Department will remain in touch with regulators as appropriate,” a Treasury spokesperson said in a statement.

The Federal Reserve declined to comment.

Shares of SVB Financial Group were halted Friday morning pending news. The lender, which caters to tech start-ups, saw its share price plummet by 60% on Thursday after revealing plans to rapidly raise cash to shore up its balance sheet.

Billionaire investor Bill Ackman on Thursday urged the government to consider intervening to protect SVB’s customers.

“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall,” Ackman said in a tweet.

Neither Treasury nor the Fed commented on whether the federal government is considering an intervention.

Worries about SVB helped drive down US stocks on Friday, with the banking sector suffering its worst day in nearly three years.

Crypto-focused lender Silvergate collapsed earlier this week, announcing plans to wind down operations and liquidate. 

US markets were lower on Friday morning after February's jobs report showed signs of easing inflation.

Payrolls increased last month by 311,000 jobs, blowing past Wall Street's expectations of 205,000 jobs added, but investors found hope in smaller-than-expected wage gains.

Slowing wage increases could be a sign of cooling inflation and may alleviate some pressure on the Federal Reserve to aggressively hike interest rates at its policy meeting later this month.

Traders are now pricing in a 50% chance that the Fed will raise interest rates by a hefty half point at its next meeting, down from nearly 80% on Wednesday.

Treasury yields, which typically move in the opposite direction of stocks, also dropped following the release of the jobs report.

Still, Wall Street was in panic mode after tech lender SVB Financial Group announced on Thursday that it needed to sell billions of dollars of assets to make its customers whole. Fear of a bank run sent shares of SVB plunging 60% on Thursday, trading was halted on Friday morning pending news.

That plunge spilled over into the rest of the banking industry as investors worried about larger risks in the sector.

US bank stocks logged the largest declines in nearly three years on Thursday, and continued to fall on Friday. Shares of JPMorgan Chase were down about 0.7% on Friday while shares of Citigroup fell by 1.5%. Wells Fargo was down 2.1% and Bank of America dropped by 3.9%.

The Dow was down 87 points, or 0.3%, on Friday morning.

The S&P 500 fell by 0.4%.

The Nasdaq Composite was 0.5% lower.