As Regional Banks Struggle, US Witnesses Deposits Steadying

On March 19, U.S. officials claimed that the deposit outflows that left several regional banks reeling in the event of Silicon Valley Bank’s bankruptcy had slowed and, in some cases, turned, as investors attempted to determine whether the crisis had been addressed.

Shares of regional banks like First Republic Bank, PacWest Bancorp, and Western Alliance Bancorp have plummeted since the banking crisis began on March 8 with the failure of Silvergate Capital Corp. and grew worse as U.S. regulators decided to take over Silicon Valley Bank and Signature Bank.

An anonymous U.S. official told Reuters that funds in the country’s banking system were stabilizing and that U.S. banks had minimal exposure to Credit Suisse Group AG, the Swiss financier that teetered before being acquired by larger competitor UBS Group AG on March 19.

Numerous regional banks have likewise stated that their deposit bases have leveled out. However, some of them, like First Republic and PacWest, have sought private capital but have been unsuccessful thus far, owing to concerns from peers and private equity companies about probable losses in their investments as well as loan books, as per Reuters.

According to the chief market strategist at Bannockburn Global Forex, Mark Chandler, regional banks have been under pressure due to being less prepared to handle deposit withdrawals than large banks.

On March 16, most of the major banks agreed to deposit $30 billion in the First Republic as a show of unity. On March 19, however, S&P Global cut First Republic’s credit rating further into trash territory and warned that another reduction was possible, noting the impact of capital outflows.

According to sources, the First Republic was still attempting to put together a capital raise, but no deal was near.

In a statement, First Republic said it was in a better position to manage short-term deposit activities.

At least four U.S. lawmakers said on March 19 that they would propose raising the government insurance limit on bank accounts from the current $250,000 to instill more trust in the system.

According to a source, billionaire investor Warren Buffett, who helped save some banks during the 2008 economic downturn, has met with senior U.S. officials regarding the banking problem. Buffett has yet to bail out any regional banks.

The Federal Deposit Insurance Corporation, the U.S. authority that took over Silicon Valley Bank and Signature Bank, made some headway on March 19 in returning one of them to private ownership.

40 branches of Signature Bank’s deposits and loans would be purchased by New York Community Bancorp. New York Community will buy $12.9 billion in loans at a $2.7 billion discount. The FDIC estimated the arrangement would cost its Deposit Insurance Fund around $2.5 billion, emphasizing the government backing that was required to seal the deal.

Nevertheless, the FDIC failed to find a buyer for the entire Silicon Valley Bank last weekend and will seek new offers for parts of the bank on March 22 and 25, according to Reuters.