Shares in several US regional banks closed sharply lower on Monday despite efforts by president Joe Biden to reassure investors Washington regulators would do “whatever is needed” to protect depositors.
San Francisco-based First Republic led the sell-off, finishing down 62 per cent in New York, having fallen as much as 75 per cent earlier in the trading day. Trading in its shares and those of several other US lenders were halted multiple times because of volatility.
Investors dumped the stocks even after the Federal Reserve and Treasury boosted lenders’ access to quick cash following the government takeovers of Silicon Valley Bank and Signature Bank.
The sell-off was a troubling sign that investors believe regulators had not done enough to stem deposit outflows following SVB’s collapse, and Fed chair Jay Powell weighed in after the market close to announce “a thorough, transparent, and swift review” of the failure.
Arizona-headquartered Western Alliance Bank was the second-worst performer of the regional banks, closing 47 per cent lower, while shares of Los Angeles-based PacWest and Utah’s Zions lost more than a fifth each. Of the 156 listed US banks tracked by a Refinitiv sector index, 149 ended the day lower.
Biden had attempted to reassure Americans their deposits were safe in pre-markets remarks, when he made clear that the blanket guarantee to SVB depositors and new cheap loans to other struggling lenders offered at the weekend would not be the end of government efforts.
“We will not stop at this,” Biden said. “We’ll do whatever is needed on top of all [this].”
Some analysts said the sell-off was overdone given that the investor fears relate to bank liquidity, which the Fed is addressing, rather than solvency.
“There’s no question over the value of balance sheets here as there was in 2008, but I don’t know at this point what it takes to get people to look at the situation more carefully,” said Jesse Rosenthal, head of US financials at CreditSights.
SVB was taken over by the government on Friday following a run on its deposits and a collapse in its stock price amid fears it was struggling for capital. On Sunday, regulators took over Signature Bank, which had close ties to the crypto sector.
Monday’s sell-off was driven in part by fears that other regional banks could have a run by depositors similar to the one that brought down SVB, especially by clients with balances above the $250,000 covered by federal insurance.
“The reality is that all kinds of market participants are nervous,” said Mayra Rodriguez Valladares, a regulatory consultant. “Everyone is wondering, ‘What if I have assets at Bank A or B or C?’”
As stress rippled through the financial system, a lender to many US regional banks raised tens of billions of dollars to safeguard the sector.
The sheer size of the offering gives the system, created in the midst of the Great Depression, the ability to lend a mammoth sum to banks attempting to fortify their balance sheets as they struggle with deposit flight.
The FHLB — seen as the lender of second-last resort before a bank might tap emergency funding from the Fed — was already a large provider of capital to Silicon Valley Bank. The Federal Home Loan Bank of San Francisco had advanced $15bn to SVB, as well as a further $14bn to First Republic at the end of last year, a filing with US securities regulators showed.
The FHLB could not be reached for comment.
First Republic on Sunday shored up its finances with funding from the Fed and JPMorgan Chase as fears of contagion spread among regional lenders. The bank said the funding gave it $70bn of unused liquidity, excluding money available from the new Bank Term Funding Program announced on Sunday.
However, the steep decline in its share price has put pressure on First Republic, which has $213bn in assets and caters to wealthy individuals.
After news of SVB’s collapse broke on Friday, the chief financial officer of one technology start-up in San Francisco told the Financial Times that he went directly to First Republic to withdraw his company’s funds.
The government was closely monitoring the situation at First Republic and was ready to intervene if the San Francisco-based financial institution came under stress in the event of a run on it, said a person with direct knowledge of the matter.
If required, the Federal Deposit Insurance Corporation would be prepared to take over the bank, wiping out shareholders and bondholders to protect depositors as it did with SVB and Signature, said a person with first-hand knowledge of the plan being developed by US officials.
First Republic was believed to be in a better position than SVB and Signature as of late Sunday, which was why it was not taken over and included in the backstop plan for the two failed banks, said the person with direct knowledge of the matter.
Additional reporting by Eric Platt in New York
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