A top banking executive’s recent warning that more “cockroaches” could emerge in the financial system proved prescient, as bad loan disclosures at two US regional banks triggered a global market sell-off. The news fueled fears of wider credit stress after recent bankruptcies at Tricolor and First Brands.
The new “cockroaches” were Zions Bancorporation, which is writing off $50m, and Western Alliance, which is battling a $100m bad loan. While these banks are small, the news raised fears of a domino effect, similar to the 2023 SVB crisis.
Global markets reacted with alarm. European and Asian stock indices fell sharply, with bank shares leading the decline. The pan-European banking sector lost €37.4 billion in value, with shares of Barclays and Deutsche Bank plummeting.
Investors, grappling with a “wall of worry,” dumped stocks and fled to safety. Gold prices hit a new all-time high of $4,378 an ounce, its best week since 2008. Meanwhile, the VIX “fear index” surged, indicating high levels of market anxiety.