"The Domino Effect: Regional Bank Stocks Plunge as PacWest Reports Deposit Loss"

 

The regional banking sector in the US faced another setback last week after PacWest, a California-based lender, disclosed a loss of 9.5% of its deposits due to rising pessimism around the industry. PacWest had come under scrutiny after the March 10 failure of Silicon Valley Bank, and news that it was considering a sale or capital raise saw its stock decline further. The disclosure last week heightened fears among customers about the safety of their deposits, leading to a majority of the 9.5% deposit drop. As a result, PacWest's stock plummeted by as much as 33%, and other regional banks, including Western Alliance and Zions, were also affected.

Despite assurances from top figures on Wall Street and in Washington that the worst of the crisis is over, investors continue to penalize regional lenders that share any similarities with the three mid-sized banks - Silicon Valley Bank, Signature Bank, and First Republic - that have already been seized by regulators. Some investors have also made small bets against these regional banks, leading to calls to ban short selling on banks or investigate these investors for potential misconduct.

PacWest has taken measures to deal with the deposit outflows, including pledging $5.1 billion to the Federal Reserve's discount window, which has given the bank an additional borrowing capacity of $3.9 billion. This has increased the bank's total immediately available liquidity to $15 billion, which is more than its uninsured deposits of $5.2 billion. PacWest has also reduced its dividend to strengthen its financial position and plans to complete some asset sales in the second quarter to improve liquidity and capital positions.

The volatility in the regional banking sector highlights a disconnect in the financial world about the health and stability of these banks. While some banks are taking measures to strengthen their financial positions, investors continue to be cautious, leading to fluctuations in the sector. The Securities and Exchange Commission has also expressed concern about identifying and prosecuting any form of misconduct in the sector.