Latest on global markets and banking crisis

President Joe Biden said he believes his administration has done a “pretty damn good job” working to resolve the banking crisis and said he thinks it will “take a little while for things to just calm down.” 

“So I think it’s gonna take a little while for things to just calm down but I don’t see anything on the horizon that’s about to explode but I do understand there’s an unease about this and these midsize banks have to be able to survive and I think they’ll be able to do that,” Biden said during a news conference with Prime Minister Justin Trudeau in Canada. 

Asked what measures his administration would take, including whether he would guarantee more deposits, Biden said if needed he would “have the FDIC use the power it has to guarantee those loans above 250K like they did already.” 

“Look, I think we’ve done a pretty good damn job,” Biden said adding, “people’s savings are secure” and “the banks are in pretty good shape.”

Top US financial regulators met behind closed doors on Friday to discuss stress in the banking system and efforts to keep tabs on the developments, according to the Treasury Department.

A readout of the event said the meeting by video conference included Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, FDIC chair Martin Gruenberg and other members of the Financial Stability Oversight Council, or FSOC.

“The council discussed current conditions in the banking sector and noted that while some institutions have come under stress, the US banking system remains sound and resilient,” the readout said.

It’s not clear which banks in particular were discussed but the meeting comes after days of turbulence in the share price of regional banks and a plunge for Germany’s biggest bank, Deutsche Bank.

Treasury said regulators discussed ongoing efforts at agencies to monitor financial developments and also heard a presentation from staff at the New York Federal Reserve Bank on “market developments.”

Stocks closed higher Friday, recovering from earlier losses brought about by a plunge in Deutsche Bank stock.

Shares of the German bank fell 8.5% after a surge in its bond insurances prices spiked investors' fears about the state of the financial sector. 

All three major indexes rose to end the week. The Dow Jones Industrial Average climbed 376 points, or 1.2%. The S&P 500 and Nasdaq Composite gained 1.4% and 1.6%, respectively.

The gains show the market's resiliency, even as the banking crisis and seemingly conflicting messages from the US economy's leaders on the security of bank deposits confuse investors.

Still, banking fears are still top of mind for investors. Wall Street will watch for further insight into the crisis next week, when the House Financial Services Committee is scheduled to hold a hearing on the collapses of Silicon Valley Bank and Signature Bank.

The Dow rose about 133 points, or 0.4%.

The S&P 500 gained 0.6%.

The Nasdaq Composite climbed 0.3%.

The Federal Reserve cannot budge from its target of 2% annual inflation, otherwise it would be a "disaster" that could set the US economy and others back five decades, St. Louis Fed President James Bullard said Friday.

Bullard, speaking during a Greater St. Louis Inc. event, said the Fed has a mandate legislated by Congress and the president to maintain stable prices for the US economy. The central bank has defined that target as 2% inflation (as measured by the headline Personal Consumption Expenditures price index).

"[That 2%] is an international standard that was developed in the 1990s," said Bullard during a Greater St. Louis Inc. event. "I think it would be a disaster to abandon that standard. That would set all the other countries to abandon their standards, and we'd be back to the 1970s. So we don't want to do that; we want to stick to our 2% goal."

Fed officials have said the process of disinflation likely could take a while and be "bumpy." Bullard said he believes it's achievable.

And for inflation to come down this year, Bullard said he expects a lot of that to come from "price-setters."

"Price-setters in the economy are thinking carefully about whether they really want to raise prices in an environment where they may lose market share going forward," Bullard said during a call with reporters following his speech. "It's known in business, generally, that if you lose market share, customer acquisition tends to be very expensive, and it's very hard to get that market share to come back."

He added: "And so I think it's that process that will lead to disinflation during 2023, and that will include services inflation and other cuts of the inflation data."

One of the biggest unknowns since the Federal Reserve started its historic rate-hiking campaign has been how many jobs could be lost from the central bank’s deliberate effort to slow down the US economy.

So far, the labor market has stayed white hot, with unemployment hovering at a half-century low. But Fed Chair Jerome Powell’s acknowledgment on Wednesday that the banking sector meltdown could lead to “tighter credit conditions for households and businesses, which would in turn affect economic outcomes” has critics reminding him of the human impact of that “Fedspeak:” Millions of people out of work.

The Fed’s latest economic projections, released on Wednesday, were largely in line with those from its last forecast, in December. In fact, the unemployment picture even grew a tinge less gloomy, with an estimated 2023 jobless rate of 4.5% instead of 4.6%.

Assuming no change in the labor force, going from the current unemployment rate of 3.6% to 4.5% would mean 1.5 million more people would be unemployed by the end of the year, according to the Fed’s projections.

While the Fed’s own estimates hint at some sort of stability, even the head of the central bank is quick to note that’s far from the case.

“It’s a highly uncertain estimate,” Fed Chair Jerome Powell said Wednesday.

And, economists say, that uncertainty is heightened, given the banking turmoil of the past two weeks.

Stocks' declines lost steam Friday as shares of Deutsche Bank recouped some of their earlier losses.

The Dow fell about 70 points, or 0.2%. The S&P 500 dropped 0.2%. the Nasdaq Composite slipped 0.6%.

Shares of Deutsche Bank closed 8.5% lower in Frankfurt after its bond insurance prices surged, worrying investors already skittish from recent woes in the financial sector. The bank had been down more than 14% earlier in the day.

US regional bank stocks also recovered some of their recent declines. Shares of First Republic were down about 1.3%. Shares of New York Community Bancorp rose 1.8%.

Meanwhile, EU leaders tried to calm fears about Europe's banking sector to limit fallout from Deutsche Bank. The European Council of EU heads of state and government said that the sector is "resilient." 

In the US, Treasury Secretary Janet Yellen is slated to hold a private meeting of financial regulators. Yellen has given seemingly confusing statements about how much the government will intervene to help limit the banking crisis in recent days, sending ripples through the market.

Shares in Deutsche Bank closed down 8.6% Friday, paring earlier losses.

The bank’s stock had sunk as much as 14.5% earlier in the day as investors fretted over whether turmoil in the financial sector had spread to Germany’s biggest lender.

The cost of buying insurance against a possible default by Deutsche Bank has soared in recent days. Its five-year credit default swaps surged to 203 basis points Thursday, according to data from S&P Market Intelligence. That’s the highest level since early 2019. The swaps continued to climb Friday, trading at 208 basis points at midday ET.

Analysts told CNN that rising interest rates, as well as an announcement by Deutsche Bank Friday that it would pay back one of its bonds five years early, had rattled investors.

Repaying bonds before their maturity is usually an indication that a bank's balance sheet is in good health. But some investors may have interpreted the move as a sign Deutsche Bank is nervous about the banking sector, Jonas Goltermann, deputy chief markets economist at Capital Economics, told CNN.

Deutsche Bank's decision to pay back the bond ahead of schedule was pre-planned and not a reaction to recent market developments, a source familiar with the matter told CNN. The bond would have gradually lost its eligibility as a form of regulatory capital according to rules brought in after the 2008 financial crisis, the source said.

The bank replaced the bond by issuing another bond of the same type in February, they added.

The recent string of bank collapses are more likely one-offs than "harbingers of poor US macroeconomic performance," St. Louis Fed President James Bullard said Friday.

"It's true that when you raise rates, you're talking about affecting all these financial entities and all these different corners of the financial markets," he said. "Not every single one of them is going to adjust appropriately to the higher rate environment."

Bullard cited a handful of examples from recent history, including: in 1984, when Continental Illinois National Bank and Trust Company became the largest ever bank failure in US history; the Mexican peso devaluation in 1994; and the demise of the Long-Term Capital Management hedge fund in 1998.

Silicon Valley Bank, which took on billions of dollars of deposits from the cash-flush tech industry during the pandemic, is very likely another "unusual case" versus a sign of broader macroeconomic weakening, he said.

"If you're in a forest and then you come to a place on the road and there's a stop sign, and you're not sure if you're supposed to take a right turn at the stop sign or if you're supposed to go straight; you don’t want to split the difference and drive into the forest," he said. "You've got to make a decision about which way you're going to go."

And Bullard's decision hinged on what he viewed as his greatest probability scenario:

"The most likely case is that this is a quirky bank that had a special problem and we have taken actions to mitigate this and probably financial stress will abate," he said. "If it doesn't, I will have taken a wrong turn, but I think that's a lower probability here."

St. Louis Federal Reserve President James Bullard said Friday that he's putting an 80% probability on financial turmoil easing but also is anticipating additional rate hikes from the central bank in response to a stronger-than-expected US economy.

"What I actually think will happen in the 80% probability scenario that the financial stress abates and that we're left dealing more with a more rapidly growing economy and higher inflation is that we'll be forced to ratchet [the Fed's benchmark rate] up somewhat higher as we go through 2023," Bullard said during a call with reporters following a speech at a Greater St. Louis event.

Bullard's base scenario presumes that the focus would return to the economy itself, which continues to show strong labor market readings and inflation dialing back as a slower pace than expected.

"If it doesn't abate, that's a completely different world where financial stress gets more intense, and I would be willing to react to that," he said.

The latest Fed economic projections, which were released Wednesday, include an expectation for an additional quarter-point increase by the end of this year. Bullard said he raised his personal expectation beyond that by another 25 basis points, putting his projections for the Fed funds rate at 5.625%.