PacWest Stock Plummets as Banking Crisis Fears Reignite
PacWest Stock Plummets as Banking Crisis Fears Reignite
PacWest Signals Banking Crisis Not Over Yet
Jerome Powell, head of the U.S. Federal Reserve, said on Wednesday during his FOMC press conference that the U.S. banking system is "sound and resilient." Yet just hours after Mr. Powell uttered those words, on Wednesday, another bank, PacWest Bancorp ($PACW), announced that it was in talks with investors about its strategic options as its stock price plummeted.
Shares of PACW accelerated lower on Thursday, dropping a staggering 50% to $3.20 a share in early-morning trading. The stock was trading at $28 per share back in March. Despite the efforts by regulators and the U.S. Central Bank Chief to assuage the public over the banking crisis, it appears that the troubles in the banking system are ongoing.
Contagion Risk Spreading in Market
This fear is rippling into the banking sector and the broader markets. Through mid-morning trading, SPDR Regional Banking ETF KRE traded down over 6% to its lowest level since September 2020, and the Dow Jones Industrial Average (/YM) lost over 300 points or 0.96%. Meanwhile, the Cboe’s VIX Index rose above the 20 mark for the first time since early April.
Meanwhile, another regional bank--Western Alliance ($WAL), an Arizona-based regional bank—is down nearly 30% halfway through the Wall Street trading session. The bank is off its lows after refuting a Financial Times article claiming the bank was exploring a sale, saying that the report is “categorically false,” per FT.
Regulators Need to Take Action to End the Banking Crisis
JPMorgan Chase assumed control of First Republic recently, and some assumed it would put the crisis to rest, but Americans remain wary of regional banks. Some are transferring their deposits to larger institutions, believing that those banks are too big to fail and thus immune from a catastrophe. Others moved deposits into money-market funds, which pay more interest versus traditional savings accounts.
One solution would be for the FDIC to up the $250,000 coverage limit for deposits. Nelson Peltz, who runs the Trian Fund Management, proposes in a Financial Times piece that a small insurance premium for those with balances over that limit could stem the outflow from regional banks. Earlier this week, the FDIC recommended changes to the banking system, including raising insurance limits for business accounts to cover payroll operations for small- and medium-sized businesses, which the FDIC as around $2.5 million. For now, however, volatility in regional bank stocks is likely to continue.
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