Shares in U.S. regional banks have fallen sharply over fears of deposit flight, as the unexpected collapse of Silicon Valley Bank and Signature Bank prompted investors to dump stocks.
Signs of trouble emerged on Wednesday, March 8, when Silicon Valley Bank (SVB) surprised investors with news that it needed to raise more than $2 billion to shore up its balance sheet.
The 40-year-old bank also had a high percentage of uninsured domestic deposits — nearly $152 billion, more than 90 percent of all deposits. By the end of Friday, customers had tried to withdraw $42 billion, prompting California regulators and the Federal Deposit Insurance Corporation (FDIC) to step in and shut down the bank.
Two days later, the New York Department of Financial Services took possession of Signature Bank “to protect depositors.”
Shares in several U.S. regional banks closed sharply lower on Monday (March 13) despite President Joe Biden’s assurance that Washington regulators would do “whatever is needed” to protect depositors.
San Francisco-based First Republic led the sell-off, finishing down 72.9 percent since the March 8 revelation that SVB was in trouble. Arizona-based Western Alliance Bank was the second-worst performer of the regional banks, closing 63.5 percent lower since March 8.
If necessary, the FDIC could take over the First Republic, wiping out shareholders and bondholders to protect depositors as it did with SVB and Signature. The FDIC insures up to $250,000 per account, per bank, for depositors.
Republished with permission from TIPP Insights