(AOF) – The regional bank First Republic is expected to rise some 17% at the opening of Wall Street after collapsing 47% yesterday, to an all-time low of 12.18 dollars. This fall is the consequence of S&P Global’s decision to downgrade the bank’s credit rating to junk grade, warning that the recent injection of $30 billion in deposits by 11 major banks could not 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.