(AOF) – The action of First Republic Bank fell 16% in pre-market. S&P Global downgraded the bank’s credit rating to speculative grade while adding that the recent injection of $30 billion in deposits by 11 major banks may not solve its liquidity problems.
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The negative effects of rising interest rates
The rise in interest rates normally causes an increase in bank income through the loans granted. In Europe, according to a survey conducted by S&P among 85 banking establishments, the sector expects an average increase of 18% in its net interest income. However, this new inflationary context also has undesirable effects, in particular an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s businesses, ranging from loans to asset management, whose income is correlated to market valuations. Reassuring element: the banks of the euro zone are sufficiently solid to face a deterioration of their environment.