Amidst growing concerns over the financial system’s health, mid-sized lenders have recently experienced a decline in market value.
On Tuesday, the regional US lenders experienced a significant drop in their shares following the unfortunate collapse of First Republic Bank. This marks the third major casualty of the country’s banking sector since the 2008 crisis, causing great concern among investors.
Witness the sharp selloff that PacWest Bancorp, a Los Angeles-based company with $41.2 billion in assets, and Western Alliance Bancorp, a Phoenix-based company with $68 billion in assets, led. On Tuesday, the shares of both lenders experienced a significant drop of at least 15%, causing investors to worry about the financial stability of other mid-sized banks. This year alone, the pair has lost over $5 billion in market value.
Experience the latest market downturn as the KBW Bank Index, the premier benchmark index monitoring top lenders, took a significant hit of 5.52%, reaching its lowest point since December 2020. Experience the plummet of the S&P 500 Index, which dropped nearly 2% at a certain point.
In a move that has sent shockwaves through the financial world, regulators have taken over the embattled First Republic Bank. The bank will now be sold to none other than JPMorgan Chase, America’s largest bank. As part of the $10.6 billion deal, JPMorgan Chase will assume all deposits, including uninsured ones, as well as substantially all the assets of First Republic.
According to Jake Dollarhide, CEO of Longbow Asset Management, if the First Republic can experience a ‘confidence crisis,’ then any bank in the country is susceptible to the same. This highlights the importance of maintaining trust and stability in the banking industry.
The recent upheaval in the financial sector has left investors feeling uneasy. The distressing news of Silicon Valley Bank and Signature Bank’s failures in March has sparked concerns that other regional banks may also be at risk. Regulators shut down both entities in the wake of significant bank runs.
According to Ed Moya, a senior market analyst at Oanda, banking turmoil seems to be an ongoing issue, causing Wall Street to rapidly hit the sell button. With lingering doubts over regional banks, rising recession odds, and growing risks of a potential US debt default next month, risk appetite didn’t stand a chance. According to the source, this is what traders were concentrating on.
Economists suggest that the recent selloff was fueled by the looming possibility of increased interest rates coupled with elevated inflation figures. This unfortunate combination has exacerbated the situation, leading to concerns of an impending economic downturn.