Bank shares experienced a decline, with First Republic Bank leading the way, despite regulators taking extraordinary measures on Sunday evening to provide support to depositors affected by the collapse of SVB and Signature Bank. In addition, regulators offered additional funding to other financially troubled institutions, CNBC reported citing various developments.
San Francisco's First Republic Bank led the decline, losing 52% after already dropping 33% the previous week. Other banks were also affected, with PacWest Bancorp falling 24%, Western Alliance Bancorp dropping over 40%, Zions Bancorporation shedding 18%, and KeyCorp falling 26%. Additionally, Bank of America's shares slipped 4%, and Charles Schwab's tumbled 9%, the report added.
Despite the Federal Reserve's announcement on Sunday that it would create a new Bank Term Funding Program offering loans for up to a year to banks in exchange for high-quality collateral, such as Treasurys, and ease conditions at its discount window, bank stocks continued to decline on Monday.
First Republic Bank said on Sunday that it has received additional liquidity from JPMorgan Chase and the Federal Reserve. The bank stated that this move has increased its untapped liquidity to $70 billion, which is in addition to any funding that it could receive from the new Federal Reserve facility, CNBC noted.
“First Republic’s capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks,” said founder Jim Herbert and CEO Mike Roffler in a statement picked up by the outlet.
During an interview with CNBC's Jim Cramer on Monday, Herbert stated that the bank is continuing to operate normally, and that there has not been a significant increase in depositors withdrawing their funds. Western Alliance also released a statement indicating that it has observed only "moderate" outflows, and has taken additional measures to reinforce its liquidity position.
Also Monday, SPDR S&P Regional Banking ETF experienced a 10% loss following a 16% decline from the previous week, the outlet reported further.
The decline in regional bank stocks on Monday follows a surge of withdrawals from SVB Financial, which eventually led to the bank's closure. A significant factor in this development was the high percentage of uninsured deposits held by SVB, as most of the bank's customers were not assured of getting their money back prior to the regulatory actions taken over the weekend, said the report.
Although SVB had an exceptionally high proportion of uninsured deposits, there are other mid-sized banks that could also be vulnerable to significant withdrawals, noted the outlet.
“We believe regionals with less diversified and large uninsured deposit bases are at risk of deposit flight but not at the speed of SVB and they should have time to tap wholesale funding markets (such as FHLB) and raise cash levels. In a fragile environment like we are in, we believe banks should be cautious about the potential negative signaling effect of raising deposit rates to keep deposits,” said Citi analyst Keith Horowitz in a client note.
"The risk of financial contagion and bank runs remains despite recent actions taken by federal regulators over the collapse of Silicon Valley Bank (SVB)," added Mike Shelby, CEO of private intelligence firm Forward Observer, in his daily briefing to subscribers on Monday.
"The collapse of SVB, closure of Signature Bank, and the recent freefall of some bank stocks have at least temporarily shaken public faith in the banking sector. So far, the country’s top investment banks are betting against contagion, while regional banks appear to be at the greatest risk. I’m seeing more pessimism (fear, uncertainty, and doubt) on social media than I am in financial circles," Shelby added.