Bank stocks continue to fall following First Republic demise

May 2, 2023  -NEW YORK (AP) — Regulators have barely written the epitaph for First Republic Bank, but investors on Wall Street have already moved onto speculating which bank might be the next to fail.

Bank stocks fell sharply Tuesday, led downward by smaller banks with heavy exposure to uninsured deposits and commercial banks such as Western Alliance Bank, PacWest Bancorp, Comerica and Zions Bank. Shares of Western Alliance dropped 15% and PacWest fell 28%, with trading of both stocks halted briefly due to high volatility.

The second day of bank stock declines comes after regulators closed First Republic Bank on Monday and sold the vast majority of its operations to JPMorgan Chase in a fire sale. It was the second-largest bank failure in U.S. history and the third bank failure in six weeks, following the collapse of Silicon Valley Bank and Signature Bank.

While discussing the deal to buy First Republic, JPMorgan CEO Jamie Dimon said Monday that he believed “this part of this (banking) crisis is over.” But the resolution of First Republic’s ordeal didn’t resolve all the problems at other banks.

The ongoing concern among investors and regulators is that banks such as PacWest have large amounts of uninsured deposits — those above $250,000 — which have become a larger liability because rich and wealthy clients have shown themselves willing to pull their money out at the first sign of trouble. The banks are also exposed to low-interest loans that are now worth less on the open market due to the fact they were underwritten when interest rates were substantially lower.