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

Shares in First Republic and several other U.S. regional banks fell on Monday as investors worried that regulators had not done enough to stem deposit outflows following the collapse of Silicon Valley Bank.

First Republic fell by two-thirds in early afternoon trading in New York, after falling as much as 75 percent in the morning, while trading in its and several other US lenders’ shares was halted several times due to volatility.

Investors dumped bank stocks even after the Federal Reserve and Treasury increased lenders’ access to quick cash following the government takeovers of Silicon Valley Bank and Signature Bank.

Arizona-headquartered Western Alliance Bank fell about 60 percent, while shares of Los Angeles-based PacWest and Utah’s Zions both fell by about a quarter. Out of the 124 listed US banks with a market capitalization of $5 billion. or less from Friday, was more than 100 in the red.

The sell-off continued despite a pledge by President Joe Biden to do “whatever is necessary” to protect bank deposits as he sought to reassure Americans that their money was safe.

“We will not stop at this,” he added, referring to the US government’s actions over the weekend. “We will do whatever is necessary on top of it all [this].”

Some analysts said the sell-off was exaggerated as investors’ fears relate to bank liquidity, which the Fed is addressing, rather than solvency.

“There’s no question about the value of balance sheets here, as there were in 2008, but I don’t know at this point what it will take to get people to look more carefully at the situation,” said Jesse Rosenthal, head of US Finance at CreditSights.

SVB was taken over by the government on Friday after a run on its deposits and a collapse in its share price amid fears it was struggling for capital. On Sunday, regulators took over Signature Bank, which had close ties to the crypto sector.

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Monday’s selloff was driven in part by fears that other regional banks could see a run from depositors similar to the one that brought down SVB, particularly by customers with balances above the $250,000 covered by federal insurance.

“The reality is that all kinds of market participants are nervous,” said Mayra Rodriguez Valladares, a regulatory consultant. “Everyone wonders, ‘What if I have assets in Bank A or B or C?’

As stress rippled through the financial system, a lender rushed to many US regional banks to raise tens of billions of dollars in a move to protect the sector.

The Federal Home Loan Banks system was closing in on the sale of $88.7 billion. short-term notes on Monday afternoon, signaling that banks could hit the backstop for funding in the coming days, according to two people briefed on the transaction.

The sheer size of the offering would give the system, created in the midst of the Depression, the ability to lend a huge sum to banks trying to shore up their balance sheets as they battle deposit flight.

The FHLB — seen as the lender of last resort before a bank could tap into emergency funding from the Fed — was already a major supplier of capital to Silicon Valley Bank. The Federal Home Loan Bank of San Francisco had advanced $15 billion. to SVB, as well as an additional $14 billion. to First Republic late last year, a filing with US securities regulators showed.

The FHLB could not be reached for comment.

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

However, the sharp decline in the share price has put pressure on 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 that he went straight to First Republic to raise his company’s funds.

The government was closely monitoring the situation at First Republic and was ready to step in if the San Francisco-based financial institution came under stress in the event of a run on it, said a person with direct knowledge of the matter.

If necessary, the Federal Deposit Insurance Corporation will be prepared to take over the bank and wipe out shareholders and bondholders to protect depositors, as it did with SVB and Signature, said a person with first-hand knowledge of the plan being developed by U.S. officials.

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

Biden and Treasury Secretary Janet Yellen hoped the measures taken to protect depositors at SVB and Signature would reassure First Republic account holders.

There were so far no “white knights” lining up bids for First Republic, according to people familiar with the matter.

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