Stocks in several US regional banks closed sharply lower on Monday despite efforts by President Joe Biden to reassure investors that regulators in Washington will do “whatever is needed” to protect depositors.
San Francisco-based First Republic led the sell-off, ending down 62 percent in New York, after falling as much as 75 percent earlier in the trading day. Trading in its shares and those of several US lenders has been halted several times due to volatility.
Investors dumped the stock even as the Federal Reserve and the Treasury Department boosted lenders’ access to quick cash following the government’s takeover of Silicon Valley Bank and Signature Bank.
The sell-off was a troubling sign that investors believe regulators haven’t done enough to stem deposit outflows after the SVB collapse, and Fed Chairman Jay Powell rallied after the market came close to announcing a “comprehensive, transparent and expeditious review” of the failure.
Arizona-based Western Alliance Bank was the second-worst performer among regional banks, closing down 47 percent, while Los Angeles-based Bacoist and Utah-Zeon lost more than a fifth each. Of the 156 listed US banks tracked by the Refinitiv Sector Index, 149 ended the day lower.
Biden attempted to reassure Americans their deposits were safe in pre-market remarks, when he made clear that a blanket guarantee for SVB depositors and new cheap loans for distressed lenders offered over the weekend would not be the end of the government’s efforts.
“We’re not going to stop there,” Biden said. “We will do whatever is required above all else [this]. “
Some analysts said the sell-off was overdone since investors’ concerns relate to bank liquidity, which is being handled by the Fed, rather than solvency.
said Jesse Rosenthal, Chief Financial Officer at CreditSights.
The government took over SVB on Friday after a flood of its deposits and a collapse in its share price amid concerns it was struggling for capital. On Sunday, the regulators took over Signature Bank, which had close ties to the crypto sector.
Monday’s sell-off was driven in part by concerns that other regional banks could be run over by depositors similar to the one that brought down SVB, especially by customers with balances above $250,000 covered by federal insurance.
“The reality is that all kinds of market participants are nervous,” said Mayra Rodriguez Valladares, a regulatory consultant. “Everybody’s wondering, ‘What if I have assets in Bank A, Bank B, or C?'” “
As stress spreads through the financial system, a lender to several US regional banks has raced to raise tens of billions of dollars in a move to protect the sector.
The Federal Home Loan Banking System was finalizing the sale of $88.7 billion in short-term bonds Monday afternoon, suggesting lenders could take advantage of the boost to get financing in the coming days, according to two people familiar with the deal.
The sheer size of the supply would give the system, set up in the midst of the Great Depression, the ability to lend a huge amount to banks trying to shore up their balance sheets as they struggle with deposit flight.
FHLB — seen as a lender of last resort before the bank turned to emergency funding from the Federal Reserve — was already a large provider of capital to the Silicon Valley bank. A filing with US securities regulators showed that the Federal Home Loan Bank of San Francisco advanced $15 billion to SVB, plus another $14 billion to First Republic at the end of last year.
FHLB could not be reached for comment.
First Republic on Sunday boosted its finances with funding from the Federal Reserve and JPMorgan Chase as fears of contagion spread among regional lenders. The bank said the financing gave it $70 billion in unused cash, excluding funds available from a new bank financing program announced Sunday.
However, the sharp drop in its share price has put pressure on First Republic, which has $213 billion in assets and serves wealthy individuals.
After news of SVB’s collapse broke on Friday, the chief financial officer of a San Francisco tech startup told the Financial Times that he went straight to First Republic to siphon his company’s money.
The government was closely monitoring the situation at the First Republic and was ready to step in if the San Francisco-based financial institution came under pressure in the event of a run-off, said a person familiar with the matter.
If necessary, the FDIC would be willing to take over the bank, eliminating shareholders and bondholders to protect depositors as it did with SVB and Signature, said a person with direct 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 is why it wasn’t seized and included in the two failing banks’ subsidy plan, the person familiar with the matter said.
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