REGIONAL BANKS BATTLING MARKET TURMOIL
Government moves to assuage fears after back-to-back seizures
The unexpected seizure of two banks in three days by regulators intensified fears of a broader financial crisis, sending the stocks of more than two dozen banks into free fall on Monday, even as President Joe Biden reassured Americans that the banking system was resilient and that customers’ money was safe.
Banks of various sizes in different parts of the country — from San Francisco-based First Republic Bank to Salt Lake City-based Zions Bank — found themselves battling market turmoil as customers rushed to withdraw their deposits and investors, worried about more runs, dumped bank stocks.
In a brief televised statement from the White House shortly before the U.S. markets opened, Biden said the government was responding decisively to the collapse of Silicon Valley Bank and Signature Bank in ways that would protect depositors without rewarding risktaking executives and investors.
“Americans can rest assured that our banking system is safe — your deposits are safe,” the president said. “Let me also assure you we will not stop at this; we’ll do whatever is needed.”
He tried to make clear that he did not consider what the government was doing to be a bailout in the traditional sense, given that investors would lose their money and taxpayers would not be on the hook for any losses.
“Investors in the banks will not be protected,” Biden said. “They knowingly took a risk, and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”
Biden’s comments didn’t im
mediately appear to assuage investors, as shares of banks large and small closed the day in the red, with the KBW Bank Index, a proxy for the industry, down nearly 12 percent. On a day when the S&P 500 stock index ended up flat, shares of First Republic tumbled 60 percent and Western Alliance slumped 45 percent.
Despite the echoes of the 2008 financial crisis, when 465 banks failed within four years, sometimes dozens in a month, regulators and banking officials were quick to insist that the current panic is far more contained, and that the banks whose stocks tanked had enough funds to meet their obligations.
Last week, San Diegobased Silvergate, a cryptocurrency-focused bank, said it would shut down; between Friday and Sunday, the government seized Silicon Valley Bank and Signature Bank.
On Monday, the Federal Reserve announced that it would conduct a review of Silicon Valley Bank’s oversight. The Federal Reserve Bank of San Francisco, on whose board the former CEO of Silicon Valley Bank, Gregory Becker, sat until Friday, was responsible for supervising the failed bank.
“The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review by the Federal Reserve,” Jerome Powell, chair of the Federal Reserve, said in a release.
Regulators decided to shut down Signature Bank after it “failed to provide reliable data and created a lack of confidence in the bank’s leadership,” said Adrienne Harris, New York state’s superintendent of financial services.
“Everyone is breathing hard today, and maybe I’m missing it, but I think everything should settle down,” Lloyd Blankfein, who was CEO of Goldman Sachs during the 2008 financial crisis, said in an interview.
It was hard to tell whether shareholders were reacting to actual vulnerabilities they spotted in the financials of those companies, or to the possibility that they would meet the same fate as Silicon Valley and Signature. Neither was there an obvious reason why companies as large as Charles Schwab, with roughly $350 billion in deposits, and as small as Western Alliance, with $62 billion in deposits, got caught in the cross hairs. Silicon Valley Bank had roughly $175 billion in deposits before last week, and Signature had under $100 billion before it was shut down. “Schwab has gotten a lot bigger, and the question is: Did they make the same mistakes SVB did?” said Robert Siegel, a business school lecturer at Stanford. Schwab released a statement Monday saying it was “well positioned to navigate the current environment,” and called itself “a safe port in a storm.” Anticipating a bloodbath on Monday, First Republic, the nation’s 14th-largest bank, said a day earlier that it could grab $70 billion if needed from sources including the Federal Reserve and JPMorgan Chase, the nation’s largest bank by assets. Its shares still lost nearly three-fifths of their value on Monday — at one point touching $30, a low they had not touched since the end of 2010. PacWest Bancorp, a Los Angeles bank that lends to small and medium-sized businesses, also sought to quell concerns about its stability, emphasizing on Monday that it had access to $14 billion in funds through a mix of cash, easily sellable securities, a credit line from the Federal Home Loan Bank of San Francisco and access to the Federal Reserve’s discount window, a borrowing program that provides fast liquidity. The bank said in a regulatory filing Monday that its customers had withdrawn some $700 million in deposits as of late last week, leaving PacWest with $33.2 billion in deposits and $41 billion in assets. Shares of PacWest plunged nearly 60 percent before recovering to end the day at $9.75, down 21 percent from Friday’s closing. “Bank stock investors don’t like uncertainty, and there’s a lot of that right now,” said Jason Goldberg, an analyst at Barclays. “You have to be concerned that the lack of stock market confidence leads to a lack of depositor confidence.” Even if a bank’s stock price is not directly correlated to the strength of its balance sheet, Goldberg said, investors and depositors often use market performance as an indicator of financial health. So a loss of depositor confidence could mean a rush of withdrawals, which could drag down a bank. Smaller banks, including those institutions that focus on certain groups of customers, are especially vulnerable to financial panic. The collapse of Silicon Valley Bank on Friday, followed by the federal government’s closure of Signature Bank on Sunday, highlighted that. Silicon Valley catered mainly to the technology startup community, and Signature Bank was a big lender to New York’s legal and real estate industries. So even if their troubles didn’t pose a widespread systemic risk, the two banks were central enough to those industries that bank runs would be destabilizing, said Tyler Gellasch, president of Healthy Markets Association, an advocate for greater transparency in financial markets. “If Signature happened in a vacuum, we probably don’t see this regulatory action,” Gellasch said. “On each coast, we have bank failures that are uniquely focused on very wealthy and very connected industries.” It didn’t help that Signature Bank also made a big play for cryptocurrency deposits — an area that many big banks were wary of entering, or prevented from doing so by stringent regulation. When the crypto bubble burst, the value of billions of dollars of customer deposits fell, leaving Signature on perilous ground. At various banks, depositors — especially those with business accounts that hold more than $250,000 — were also concerned that they would lose much of their money because the Federal Deposit Insurance Corp. insures deposits of up to $250,000. On Sunday, the FDIC said that all customers of Silicon Valley Bank and Signature Bank with deposits above $250,000 would be made whole.