Federal Reserve Chair Jerome Powell said Wednesday that the seizure of First Republic was "an important step toward drawing a line under" turmoil in the banking system. Within two hours the stock of another troubled regional lender was down more than 50%.
The trigger was a series of media reports that Beverly Hills, Calif.-based PacWest (PACW) was weighing a range of strategic options, including a sale or capital raise. Its stock continued to fall during Thursday morning trading, down by more than 52% after being halted temporarily.
Other regional banks under scrutiny from investors also plunged, including Phoenix-based Western Alliance (WAL), which is also reportedly considering a sale of all or parts of its business. A Memphis-based lender, First Horizon (FHN), plummeted more than 38% Thursday after Toronto-Dominion Bank called off its deal to acquire the company.
The new round of volatility for regional banks punctuates a disconnect in the financial world as the industry’s unrest drags into an eighth week.
While top figures on Wall Street and Washington display optimism that the worst is over, investors continue to punish other regional lenders that share any characteristics of the three mid-sized banks already seized by regulators.
'The regional banking system is at risk'
On Monday JPMorgan Chase (JPM) CEO Jamie Dimon captured the industry’s hopes when he said "this part of the crisis is over" after announcing JPMorgan’s purchase of First Republic. Jane Fraser, CEO of Citigroup (C), on Monday called First Republic "the last remaining main uncertainty of the small handful of banks that did not do a good job with asset liability management."
Powell reinforced this view on Wednesday, citing the failures of First Republic, Silicon Valley Bank and Signature Bank as the "three large banks really from the very beginning that were at heart of the stress we saw in early March," he said.
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