“Wall Street is wondering which bank could be the next one that needs a rescue and that is making it easy to pick on the other regional banks,” said Edward Moya, Oanda senior market analyst. “It looks like JPMorgan’s deal for FRC gave us one day of calm for the banking sector. Regional banking stocks are still looking vulnerable until we see clear signs that emergency lending programs can go away.
Western Alliance and PacWest are among a number of regional banks that investors have zeroed in on after the collapse of Silvergate Capital Corp., SVB Financial Group’s Silicon Valley Bank, and Signature Bank in March. The turmoil demonstrated the threat posed to commercial lenders by asset-liability mismatches and uninsured deposits.
Part of what’s driving bank shares down is the fact that many regional bank investors assumed the Federal Deposit Insurance Corp. would announce a change to deposit insurance alongside its announcements about the First Republic receivership process, said Gary Tenner, an analyst at DA Davidson. The level of uninsured deposits at Silicon Valley Bank and Signature played a key role in the bank runs that led to their downfall.
“A lot of banks were recovering deposits or growing deposits at this point,” Tenner said in a telephone interview. “This is not fundamentally driven. It’s more pressure on names now that there was no clear change in the deposit insurance.”While idiosyncratic factors are at play in the recent collapse of regional lenders, their troubles can be traced back to higher interest rates — raising their cost of funding while eroding the value of assets.
“While FRC resolution is a good sign, we haven’t had a clear solution to the lack of confidence across regional banks and may need a more holistic response from regulators or the government,” Bloomberg Intelligence analyst Herman Chan said in a message.