ASX opens lower as banks, real estate weigh

PacWest Bancorp rose 3.6 per cent to recover some of its 43 per cent plunge last week. It said on Friday night that it’s cutting its dividend to help it build its financial strength. Several other smaller- and mid-sized banks also rose, including a 0.6 per cent tick higher for Western Alliance Bancorp.

They’ve been under heavy pressure as Wall Street hunts for the next weak link following three US bank failures since March. Weighed down by much higher interest rates, smaller and mid-sized banks are scrambling to assure Wall Street their deposits are secure and not at threat of seeing a sudden exodus, similar to the runs that toppled Silicon Valley Bank and others.

A report from the Federal Reserve on Monday showed many banks tightened their lending standards during the first three months of the year. Not only that, the survey suggested banks widely expect to raise their standards over the course of 2023. Among the reasons some smaller and mid-sized banks gave for the forecast were wanting to take less risk and worries about deposit outflows.

The Federal Reserve has lifted its benchmark interest rate to a range of 5 per cent to 5.25 per cent, up from virtually zero early last year, in hopes of slowing high inflation. High rates do that by slowing the economy and hurting prices for investments, which runs the risk of causing a recession if they stay too high for too long.

The Fed said last week that it’s not sure of its next move, as swaths of the economy have shown sharp slowdowns but the job market remains largely resilient.

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Also hanging over the economy is the threat of a default by the US government on its debt.

Such an event would rock financial markets because US Treasurys are seen as the safest possible investment in the world. Treasury Secretary Janet Yellen said on ABC’s This Week on Sunday that there are “no good options” for the United States to avoid an economic “calamity” if Congress fails to raise the nation’s borrowing limit of $US31.381 trillion ($46.3 trillion) in the coming weeks.

With AP