First Republic and other US regional banks have faltered on fears of deposit flight

Shares in the First Republic and several other US regional banks fell on Monday as investors worried that regulators had not done enough to stem an outflow of deposits in the wake of the collapse of Silicon Valley Bank.

First Republic fell by two-thirds in early afternoon trading in New York, after falling as much as 75 percent in the morning, while trading in its shares and those of several US lenders halted several times due to volatility.

Investors dumped bank stocks even as the Federal Reserve and Treasury Department boosted lenders’ access to quick cash following the government’s takeover of Silicon Valley Bank and Signature Bank.

Arizona-based Western Alliance Bank fell nearly 60 percent, while Los Angeles-based PacWest and Utah-based Zions each fell nearly a quarter. Of the 124 listed US banks with a market capitalization of $5 billion or less as of Friday, more than 100 were in the red.

The sell-off continued despite President Joe Biden’s pledge to do “whatever it takes” to protect bank deposits as he sought to reassure Americans their money was safe.

“We will not stop there,” he added, referring to the US government’s actions over the weekend. “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 the Fed deals with, rather than solvency.

said Jesse Rosenthal, President of US Finance at CreditSights.

On Monday, the Federal Reserve said it would lead a review of SVB supervision and regulations, which is scheduled for May 1.

“The events surrounding Silicon Valley Bank require a comprehensive, transparent and prompt review by the Federal Reserve,” said Chairman Jay Powell.

Vice President Michael Barr added, “We need to be humble, and do a careful and thorough review of how this company is supervised and regulated, and what we should learn from this experience.”

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.

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Monday’s sell-off was driven in part by fears that other regional banks could see a stampede by depositors similar to the one that led to the SVB collapse, especially by customers with balances above $250,000 that are 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 system of banks was finalizing the sale of $88.7 billion in short-term bonds Monday afternoon, suggesting banks could take advantage of the support 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 Depression, the ability to lend a huge amount to banks trying to shore up their balance sheets as they struggle with flight of deposits.

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.

Biden and Treasury Secretary Janet Yellen had hoped that measures taken to protect depositors at SVB and Signature would reassure First Republic account holders.