Traders gather at the post where First Republic Bank stands as the stock can no longer be traded on the floor of the New York Stock Exchange (NYSE) in New York, March 15, 2023.
Brendan McDermid | Reuters
Shares of First Republic reversed their losses and regional bank stocks rose as 11 major U.S. banks are reached a rescue agreement for the company.
Shares of First Republic closed nearly 10% higher after the news. The stock had fallen more than 30% earlier in the day.
Elsewhere, the SPDR S&P Regional Bank ETF (KRE) increased by 3.5%, while western alliance And Zions Bancorp. 14.1% and 4.6% respectively. All three had declined earlier in the session.
The collapse of Silicon Valley Bank last Friday left investors scrambling to identify other regional banks that have similar balance sheet issues, namely a high rate of uninsured deposits and long-term bonds or loans. .
First Republic had the third-highest rate of uninsured deposits among U.S. banks, behind SVB and Signature Bank, which was shut down by regulators over the weekend, according to a note from Raymond James. First Republic’s stock was down nearly 75% in March as of Wednesday’s close, and the bank’s debt was downgraded by S&P Global Ratings and Fitch Ratings.
The plan announced Wednesday included $30 billion in deposits from major banks, including JPMorgan Chase and Bank of America, as a sign of confidence in the regional banking system.
First Republic shares have been under pressure since the collapse of SVB.
The struggles for regional bank stocks earlier this week came despite U.S. regulators announcing over the weekend additional support. This included a new Federal Reserve program that allowed banks to exchange certain assets for cash without having to realize the losses in market value caused by higher interest rates.
The First Republic said Sunday it had more than $70 billion in liquidity, not including any additional support from the new Fed program.
In addition to fears of further bank failures, the potential for increased regulation and smaller deposit bases for mid-sized banks could also hurt stocks as investors assess the regionals’ future earning power.
The banking system suffered another shock on Wednesday, when Swiss creditShares traded in Switzerland fell more than 20% on fears that the bank’s “material weakness” in its financial reporting could force it to raise more capital. However, the Swiss National Bank, the country’s central bank, has reached an agreement with Credit Suisse to allow it to borrow up to around $54 billion.
But while Credit Suisse’s struggles could have ripple effects throughout the global banking system, the Swiss bank’s problems appear to be unrelated to U.S. regional banks.