First Republic and other US regional banks plunge over fears of deposit flight

Shares in First Republic and several other U.S. regional banks tumbled on Monday as investors feared the Federal Reserve and Treasury Department’s weekend measures were not enough to stem deposit outflows.

First Republic shares fell 75 percent, while Arizona-based Western Alliance Bank lost 80 percent. Trading in shares of both banks was halted due to volatility.

PacWest shares halved and Zions fell more than a quarter. Charles Schwab, the retail broker who also runs a banking subsidiary, fell 8.5 percent.

Investors dumped stocks even after the Fed and Treasury improved lenders’ access to quick cash following the government’s takeovers of Silicon Valley Bank and Signature Bank.

The sell-off continued despite US President Joe Biden pledging to do “whatever it takes” to protect bank deposits as he tried 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 also do whatever is necessary [this].”

SVB was taken over by the government on Friday after a rush on its deposits and a slump in its share price amid fears it would struggle for capital. On Sunday, regulators took over Signature Bank, which has been closely associated with the crypto sector.

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Monday’s sell-off was driven in part by fears that other regional banks could see an onslaught of depositors similar to those that brought down their competitors, particularly from customers, including small businesses with balances over $250,000, who are covered by federal insurance are.

The Russell 2000 index of small-cap stocks fell 2 percent even as the blue-chip S&P 500 was flat.

“The reality is that all types of market participants are nervous,” said Mayra Rodriguez Valladares, a regulatory advisor. “Everyone asks, ‘What if I have assets at bank A or B or C?'”

First Republic bolstered its finances with funds from the Fed and JPMorgan Chase on Sunday as fears of contagion spread among regional lenders. The bank said the funding brought it $70 billion in unused liquidity, excluding funds available from the Bank Term Funding Program announced Sunday.

However, the sharp fall in its stock price has pressured First Republic, which has $213 billion in assets and caters to wealthy individuals.

After news of SVB’s collapse broke on Friday, the chief financial officer of a San Francisco tech start-up told the Financial Times he went straight to First Republic to withdraw his company’s funds.

The US government is closely monitoring the situation at First Republic and stands ready to intervene if the San Francisco-based financial institution came under pressure in the event of a run, said a person with direct knowledge of the matter.

If necessary, the Federal Deposit Insurance Corporation would be willing to take over the bank and wipe out shareholders and bondholders to protect depositors, as it did with SVB and Signature, a person testifying to the plan developed by US officials said knows firsthand.

First Republic was believed to be better positioned than SVB and Signature as of late Sunday, which is why it was not adopted and included in the backstop plan for the two failed banks, said the person with direct knowledge of the matter.

Biden and US Treasury Secretary Janet Yellen hoped depositor protection measures at SVB and Signature would reassure First Republic account holders.

As of now, according to people familiar with the matter, there are no White Knights tasked with saving the First Republic.

Shares of PacWest, a smaller Los Angeles-based bank, fell 55 percent last week, including a 37 percent plunge on Friday alone. It announced on Friday that it had $33.2 billion in deposits, basically unchanged from $33.9 billion at the end of 2022, and that its $28.5 billion in loan balances were strengthened on a strategic decision its balance sheet were slightly lower.

More than half of PacWest’s deposits, 52 percent, were uninsured, according to securities filings late last year.

Shares in Western Alliance, Customers Bancorp, Bank of Hawaii, PacWest, First Republic, EastWest, First Horizon, Macatawa, Zions and Charles Schwab were all suspended Monday morning due to market volatility, though they generally resumed trading within minutes.