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Intraday financial markets’ response to U.S. bank failures

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  • Mehdian, Seyed
  • Gherghina, Ștefan Cristian
  • Stoica, Ovidiu

Abstract

The arrival of an unfavorable event in financial markets, such as the announcement of a bank failure, generally causes reactions from investors, price changes, and higher market volatility. The present paper investigates the impact of three U.S. banks (Silicon Valley Bank, Signature Bank, and First Republic Bank) collapses on financial markets: price behavior and market volatility. We use intraday data to control and lessen the impact of confounding effects, two different event study approaches to check for the robustness of the results, several U.S. indices, and a digital asset to extend the financial markets. Our results suggest that the reactions of financial markets to the failure of these banks are mixed. The returns analyses indicate that the banks’ collapses result in higher market volatilities than positive news in the case of Bitcoin and Dow Jones Equity Real Estate Investment Trust Index. At the same time, the U.S. Dollar Index shows the reverse. The mixed results could be possibly due to the inconsequential market share of these banks in the United States banking sector. The major implication of the findings is that policymakers have to take serious actions, such as examinations of portfolio holdings, to safeguard financial stability and to prevent undesirable financial markets’ volatility.

Suggested Citation

  • Mehdian, Seyed & Gherghina, Ștefan Cristian & Stoica, Ovidiu, 2024. "Intraday financial markets’ response to U.S. bank failures," Finance Research Letters, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012345
    DOI: 10.1016/j.frl.2023.104862
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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