Following the third significant bank failure since March, depositors are rapidly withdrawing their funds from regional lenders, which has raised concerns about the safety and stability of smaller banks
On Monday, several regional banks in the United States experienced a sharp decline in share prices following the collapse of First Republic Bank, the third major casualty in the country’s banking sector since 2008. The closure of Silicon Valley Bank and Signature Bank in March had already caused depositors to flee regional lenders and raised fears that the crisis could spread to other mid-sized banks. The KBW Regional Banking Index dropped by 2.7 percent, and shares of several banks including Citizens Financial Group, PNC Financial Services Group, Truist Financial Corp, US Bancorp, and Valley National Bankcorp all saw declines ranging from 3 percent to over 20 percent.
JPMorgan Chase & Co announced a deal earlier on Monday that allowed for an orderly failure of First Republic. Under the terms, JPMorgan will pay $10.6 billion to the US Federal Deposit Insurance Corp (FDIC) for most of the failed bank’s assets. Shares of JPMorgan rose by 2.14 percent, making the largest US bank the top gainer on the Dow Jones.
Although the deal was seen as an elegant solution that could ease investor concerns over liquidity, analysts noted that it did not change the rates, recession, and regulatory headwinds that regional banks are facing. Mid-cap banks, in particular, are struggling due to aggressive monetary policy tightening by the US Federal Reserve, which has reduced the value of their interest rate-sensitive investment portfolios.
While some investors were cautious about regional banks, Wall Street analysts were largely positive about the First Republic deal. Analysts at Barclays noted that the deal marked the second-largest bank failure on record but highlighted that unlike the previous two banks, the FDIC had a buy waiting in the wings