Eleven major U.S. banks pledged Thursday to rescue First Republic, the 14th largest bank in the United States by the size of its assets, easing market fears of a new bank failure after those of Silicon Valley Bank, Signature Bank and Silvergate last week.

An effort welcomed by the US Federal Reserve (Fed), the Treasury and two financial regulators, and which had enough to reassure investors terrified by a possible risk of contagion to other banking institutions.

In Europe, stock indexes rose 0.89% in Frankfurt, 0.72% in Paris, 1.10% in London and 1.50% in Milan around 09:00 GMT supported by a message of confidence to the banking sector of the European Central Bank (ECB) which said Thursday it was ready to intervene if necessary to "preserve financial stability" in the euro zone.

In Asia, stock markets recovered from the emotions of the previous day, recovering by 1.2% in Tokyo and 1.1% in Hong Kong.

"Concerns about the banking sector are fading after the big banks gave their support to First Republic and the SNB handed Credit Suisse a lifeline," said Edward Moya, an analyst at Oanda.

A Credit Suisse branch in Geneva, March 15, 2023 © Fabrice COFFRINI / AFP

Signs of appeasement were also confirmed in the government bond market, which has been extremely volatile this week but has stabilized since the announcement of the ECB's strategy.

The governor of the Bank of France François Villeroy de Galhau wanted to be reassuring Friday morning.

"French and European banks are extremely solid," he said on BFM Business, and "are not in the situation of some American banks for a very simple reason which is that they are not subject to the same rules."

Since March 10, these bank failures across the Atlantic have revived the specter of the 2008 financial crisis that destabilized the global economy.

Rising rates

In a sign of financial stress, U.S. banks have since borrowed a total of $164.8 billion from two U.S. Federal Reserve guarantee facilities in recent days, according to financial news agency Bloomberg.

As a vector of risk in Europe, Credit Suisse was also fighting for its future.

After suffering Wednesday the worst session in its history on the stock market, bearing the brunt of concerns about the banking system, the troubled group has received support from the Swiss central bank to strengthen its liquidity.

But Credit Suisse shares, which had rallied 19.15%, without compensating for Wednesday's fall of nearly 25%, were back in the red (-3.54% around 09:230 GMT) after the hypothesis of a takeover of the banking giant resurfaced according to analysts.

All this banking turmoil has fuelled speculation that central banks may ease their stance on inflation in order to avoid a severe recession.

European Central Bank President Christine Lagarde before a press conference in Frankfurt, March 16, 2023 © Daniel ROLAND / AFP

On Thursday, however, the European Central Bank reaffirmed its determination to combat persistently high inflation by raising its key interest rates by an additional 0.5 percentage point, refraining from deciding on further monetary tightening and relying on future data to determine the future path of rates.

"The ECB leaves all its options open before the Fed and the Central Bank of England decisions next week," said Axel Botte, international strategist at Ostrum AM.

Investors will therefore be closely monitoring upcoming economic indicators to get an idea of the timing of the Fed's future monetary tightening.

The OECD is due to publish its global growth forecasts for the next two years later today.

© 2023 AFP