Wall Street’s confidence in regional banks remained shaky Monday, despite emergency measures from the Biden administration to protect customer deposits.
First Republic shares fell more than 60% and were briefly halted for volatility. Western Alliance Bancorp’s stock also fell 47%, and PacWest Bancorp fell more than 20%.
The SPDR S&P Regional Banking exchange-traded fund fell 12%.
Monday’s turmoil for bank stocks stems from the collapse Friday of Silicon Valley Bank, which came unglued last week as customers panicked and yanked their deposits.
Rather than bailing out the bank, the Biden administration and federal regulators on Sunday night said they would to backstop customers’ deposits — even those that weren’t insured. The same protections would be in place for customers of Signature, a New York regional lender that folded when depositors were apparently spooked by SVB’s demise.
By guaranteeing all deposits — even the uninsured money that customers kept with the failed banks — the government aimed to prevent more bank runs and to help companies that deposited large sums with the banks to continue to make payroll and fund their operations.
The Fed will also make additional funding available for eligible financial institutions to prevent runs on similar banks in the future.
Despite those emergency measures to avoid a 2008-style crisis, investors sold off shares of regional banks that are seen as having similar risk potential.
“It’s a good thing that we have the backstop, and it’s a good thing that the depositors were protected,” said Mike O’Rourke, chief market strategist at Jones Trading. “But it doesn’t change the fact that there’s still problems — you’re just basically buying time to sort the problems out in a better way.”
The intervention from the Biden administration and the Fed does not amount to a 2008-style bailout, meaning investors in the banks’ stock and bonds will not be protected.
O’Rourke said he’s not concerned about the health of the banking system.
“It’s a confidence-crisis risk,” he said. “If we get through the next 24, 48 hours without the regulators having to close anymore banks, we should be fine.”
First Republic lists $213 billion in assets. The lender reached out to customers over the weekend in a bid to reassure them.
“In light of recent industry events, the last few days have caused uncertainty in the financial markets,” First Republic senior executives said in an email to clients viewed by CNN. “We want to take a moment to reinforce the safety and stability of First Republic, reflected in the continued strength of our capital, liquidity and operations.”
—CNN’s Matt Egan contributed reporting.