After nearly a week of turmoil, the specter of a looming crisis in the banking sector appeared to have subsided, at least for now, as pressure lifted on medium-sized and regional lenders, which are most at risk.
Shares in First Republic, which was forced to put together a multibillion-dollar bailout at the weekend to shore up its finances, soared nearly 60 percent — matching its plunge a day earlier, though still more than half that. last five business days.
Western Alliance, a previously little-known Arizona bank, saw its shares jump 50 percent after investment giant Citadel went public. billionaire Ken Griffin that she took a stake in the hard-hit lender.
Zions Bank of Utah, PacWest Bankcorp of Los Angeles and Charles Schwab, the Texas-based financial conglomerate, also rebounded after deep declines on Monday.
While share prices are not a clear indicator of a bank’s health, falling shares can cause borrowers to panic and lead to bank failure. In fact, the recent decline in the industry was partly due to the fact that shares of Silicon Valley Bank, a technology-focused lender, fell sharply after it disclosed plans to raise the money needed to pay off some depositors.
Less than two days later, the Silicon Valley bank, which had roughly $175 billion in deposits, was taken over by federal regulators, making it the biggest bank failure since the financial crisis of 2008. Shares in other relatively small institutions have since fallen sharply on concerns that that they might also be insolvent, although only one other bank, Signature Bank, has been seized by regulators so far.
On Sunday, federal officials pledged to pay depositors in those failed banks in full, even if the banks don’t have enough money. Depositors reported on Monday that they were able to withdraw funds, a huge relief to employers and individuals who were worried about when and if they would be able to access their money.
But officials stressed that holders of stocks and bonds in the banks themselves would still be in line to lose money on their investments.
Much uncertainty remains. As bank shares rallied on Tuesday, none had yet to provide formal information on the extent to which timid customers were withdrawing their money.
First Republic Executive Chairman Jim Herbert told CNBC on Monday that the bank is not experiencing an unusual level of withdrawals.
Investors seem to assume that the federal bailout that was applied to Silicon Valley Bank and Signature would apply to any other failed lender, said Greg Hertrich, a U.S. banking strategist at Nomura and a bank executive for more than three decades.
“Having been through a lot, I can say: This one is moving fast,” Mr. Hertrich said. “There seem to be people who believe that every deposit account is guaranteed without limit. I haven’t seen any indication of what the regulators have expressed.”