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Bangkok Post
Bangkok Post

US banks on edge after rate hike

Economists warn that two more US banks are on the verge of collapse after the Federal Reserve lifted its key interest rates by 0.25% this week, prompting stock prices of American lenders to drop sharply after the hike.

As widely expected, on Wednesday the Federal Open Market Committee raised its key interest rates by 25 basis points to between 5% and 5.25%, up from near zero in March 2022. Also included with the move, its 10th hike in 14 months, was a hint that the Fed may pause rate increases for a period.

The rate increase prompted money to flow out of stock markets to safe-haven assets, including money market funds, while two more US banks could go bankrupt, analysts said.

"Fed chairman Jerome Powell sent a big signal, saying 'we're getting close or maybe even there', meaning interest rates are near the peak or maybe have even reached that point," said Kobsak Pootrakool, senior executive vice-president of Bangkok Bank.

"It's almost the end of the round. At the next meeting, they will confirm their intentions."

In addition to PacWest Bancorp, there are several banks that investors are closely watching, said Mr Kobsak.

Since Thursday, the stock prices of US banks, including some large ones, have dropped between 12%-16.9%. Medium-sized banks are bearing the brunt, with shares losing about 25%.

PacWest slumped by more than 40% to a record low in afternoon trade on Wednesday, while First Horizon shares fell 43% on news of the cancellation of a US$13-billion merger with Canada's TD Bank, which would have created America's sixth-largest lender.

Western Alliance Bancorp, the 40th-largest bank in the US with assets of $68 billion, saw its stock price fall 50% in three days. Its current share price of $18.2 is down 85% from $123 in early 2022.

"We have to watch what happens with Western Alliance Bancorp," Mr Kobsak said.

In Europe, the European Central Bank (ECB) on Thursday increased its benchmark interest rate by 0.25% as it continues to fight against high consumer price increases. ECB rates are now at levels not seen since November 2008.

"The inflation outlook continues to be too high for too long," the ECB said in a statement.

With the latest announcement, the central bank's benchmark rate will rise to 3.25% from May 10.

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