![]() PacWest isn’t hurting because it made bad bets or mismanaged its company - it’s just the next one on the list, analysts say. There is so much pessimism percolating on Wall Street, smaller banks are going to get crushed. Without a miracle from DC, the outlook for regional banks is not great. But given the players that are involved, I’m still concerned,” Moya said. “Is it a 90% probability that we’re not going to default? Yes. The debt ceiling is the biggest question right now for markets. It’s hard to overstate how catastrophic the result of default would be - think 2008 global financial meltdown, or quite possibly worse. But one giant psychological barrier could be overcome if America alleviates its debt ceiling crisis.Įarlier this week, Treasury Secretary Janet Yellen warned that the government would hit the debt ceiling on or around June 1 unless Congress raises its borrowing authority. And no rational market players are holding their breath for that.īanks are also contending with a potential recession and more interest rate hikes from the Fed. “As each domino falls, the next weakest bank begins to wobble.”Īckman and others have been arguing for the government to step in and lift the limit on deposit insurance, which currently tops out at $250,000 - a fraction of what some businesses must hold in their balances to run their day-to-day operations.īut such a change would require bipartisan support in Congress. “Confidence in a financial institution is built over decades and destroyed in days,” he wrote. That market pessimism was echoed by Bill Ackman, the billionaire investor, who tweeted Thursday that regional banks broadly are in trouble. “Even if the the numbers don’t look that bad, once the market has its eyes on you, it’s game over,” he said. In normal times, those numbers might have alleviated investors’ fears, Moya said. “Our cash and available liquidity remains solid and exceeded our uninsured deposits, representing 188%.” “The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news,” it said. PacWest reported Thursday that withdrawals had slowed and that 75% of its deposits were insured and the bank remained flush with cash. While this latest crop of regional banks bears some similarities to the three that failed this year, they don’t appear to have the same reliance on uninsured deposits that got the others in trouble. Similarly, southeastern regional bank First Horizon was teetering, having scrapped a $13 billion merger with Canada’s TD bank. It was still down 33% midday in New York, and has lost more than 65% of its value this year. The Arizona lender denied the report, helping its stock pare some losses. ![]() Western Alliance was also flagging Thursday after the Financial Times reported that the bank was exploring a sale. ![]() How a Main Street bank run infects Wall StreetĪfter First Republic on Monday became the third US lender to fail this year, investors shifted their angst toward PacWest Bancorp, yet another regional California lender, whose share price was cut in half Thursday after it confirmed it was “exploring strategic options” (read: seeking a buyer, stat). “This contagion fear has not eased up whatsoever.” “We’re seeing a lot of concern here that something’s about to break,” Ed Moya, a senior market analyst with Oanda, told me. Seven weeks later, despite the government’s intervention to backstop depositors and extend credit to banks, the panic has taken root on Wall Street, which is now feeding on its own anxiety. Here’s the deal: When Silicon Valley Bank crumbled on March 10, it was a Main Street problem - scared depositors rushed to pull out their money, and the bank ran out of cash. Wall Street: “Everybody sell, the banks are on fire!” A summary of where things stand in the banking crisis:
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