Banking Turmoil Sparks Increased Risk Perception Among Fund Managers: BofA Survey

Like its major competitors, Bank of America saw a sharp rise in interest income, helped by the Federal Reserve aggressively raising interest rates last year to stop inflation.

According to the latest survey conducted by the Bank of America, major fund managers are showing a decrease in risk-taking in response to instability in the international banking system. The survey, which was conducted from March 10 to March 16, showed that the perception of credit default and counterparty risk deteriorated the most last month, and the combined risk perception reached its highest since May 2020, indicating that global markets remain wary of further banking turmoil.

Respondents cited US shadow banking, US corporate debt, or real estate in developed markets as the most likely causes of any crash.

Despite the increase in risk aversion, the BofA survey's Bull & Bear Indicator, a measure of overall market sentiment, remained well above levels seen before major crises such as the GFC. It was reportedly at 3.4, or neutral.

US Treasury Secretary Janet Yellen spoke to the American Bankers Association to maintain confidence in the system, describing the US banking sector as "sound" and stressing that the recent collapses of Silicon Valley Bank and Signature Bank were "very different" from the GFC in 2008. She added that the US government would potentially look at continuing to guarantee bank deposits in case of further failures to prevent the spread of "contagion" in the sector.

Late last week, First Republic received a pledge for a $US30 billion injection from a group of US giants including BofA, Citigroup and JP Morgan Chase, leading to speculation that US turmoil may not yet be over. However, the buyout of Credit Suisse by rival UBS seems to have at least tempered fears of a global crash for the time being.

In summary, the Bank of America survey shows that investors are becoming significantly more concerned about the international banking system's instability, but overall sentiment remains higher than levels seen before major crashes such as the GFC. The survey suggests that global markets remain cautious about further banking turmoil and that US shadow banking, US corporate debt, or real estate in developed markets are the most likely causes of any future crashes. US Treasury Secretary Janet Yellen's speech aimed to maintain confidence in the system, and the recent pledge for a $US30 billion injection by US giants indicates that the US banking sector may not be out of the woods yet.