A crisis of confidence in the banking sector

Lehan Kruger, Portfolio Manager at Glacier Invest

Following a period of strong performance since October 2022, markets are back in volatile territory and have started retreating from January highs since the beginning of February.

The primary reason for the pullback in February was the market coming to terms with the ‘higher for longer’ narrative around interest rates. A tight labour market in the US and sticky inflation around the globe dashed hopes of a near-term peak in the interest rate cycle. Investors now have to evaluate the impact of ‘higher for longer’ interest rates on household spending, corporate earnings and balance sheets.

Concerns around the impact of higher interest rates on balance sheets have been at the forefront of the sell-off in markets during the month of March, specifically following the failure of Silicon Valley Bank (SVB), America’s 16th largest bank, on 10 March and Signature Bank on 12 March. These bank failures sparked a flashback to the banking crisis in 2008 and have weighed significantly on markets.

This note gives some background to the recent bank failures and our views on the broader risks to the banking sector.

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