Banks Break Again
Following the failure and takeover of First Republic Bank, stock market indices showed some resolve toward the financial industry, specifically from the federal backstop provided to these financial institutions. However, Tuesday’s morning did carry over panic last seen during the initial trauma in March, with several regional banks losing significant amounts of market capitalization within hours. PacWest Bancorp, a relatively smaller regional bank based in LA, lost roughly 27.78% of its value in stock. Other midsized banks that were at the forefront of Tuesday’s losses were Metropolitan Bank and Western Alliance, both of which fell 20% and 15%, respectively. The combined declines seen across the banking industry clearly depict persistent distress over the strength of these firms amidst higher interest rates.
The turbulent environment has also permeated into much larger financial institutions, with U.S. Bank, Truist, and Citizens declining roughly 7% at the bell. Even the S&P Regional Banks Select Industry Index has plummeted over 33% year-to-date. With higher interest rates, customers of banks across the U.S. have opted to transfer their money from lower-yield accounts into assets such as Treasury bonds, which currently yield much higher rates. Coupled with financing and liquidity issues of several banks, death spirals can occur as customers withdraw funds and corrupted assets are realized at low values. Nevertheless, as the core of these issues revolves around higher interest rates, investors are waiting to hear from Jerome Powell on where the Fed’s allegiance lies lowering inflation or impairing banks and businesses across the country.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
