PacWest and Other Midsize Banks Tumble 📉

PacWest and Other Midsize Banks Tumble

Following weeks of uncertainty over the strength of the American financial industry, the fall and takeover of First Republic have continued to ripple throughout midsized firms and the consumer. At the end of Thursday’s trading day, the newest player to succumb to bankruptcy threats is LA-based PacWest Bancorp, plummeting 22.70% after announcing their recent deposit numbers. Last week, PacWest Bancorp lost 9.5% of their total deposits over fears of uninsured protection and financial instability, a growing consumer trend that caused the falls of Silvergate Capital, SVB, and First Republic. Since March 8th, PacWest stock has lost roughly 80% of its value, with losses seen throughout most midsized banks across the country.

In the current macro environment, banks and their shareholders have encapsulated the destructive power higher interest rates have had on several industries. In the case of banks, irrational pressures of fear have forced banks to realize loans that have been corrupted by higher borrowing costs, leading to a snowball effect known as a death spiral. With the newest readings of April’s inflation data showing a cooling CPI and PPI, there is a chance the Federal Reserve will take a dovish position on their fiscal policy and pause interest rates at the next meeting. Coupled with the higher-than-expected jobless claims for this week, there is growing anticipation for Federal rate cuts later this year. Nonetheless, several prominent investors such as Warren Buffett believe bank customers’ worry over the safety of their money is unwarranted, and in the case of any unfortunate event, the federal government will step in to protect all insured and uninsured deposits as was for the case of the previous collapses.

Want to learn how to invest? Download the Invstr app, where you can play Fantasy Finance and manage a virtual investment portfolio or open a brokerage account and invest for real. Take our interactive investing course on Invstr Academy and become a better investor today!

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.

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