The financial markets were plunged into turmoil on Tuesday as stocks for major banking institutions, including PacWest, Western Alliance, and others, plummeted by over 20%. This development comes on the heels of California financial regulators seizing control of First Republic Bank on Monday. As a result, 84 branches are expected to reopen under the management of JP Morgan Chase.
Shares of PacWest Bancorp (PACW), based in California, tumbled from $8.90 at 9:30 am ET on Monday to a mere $5.50 by 11:10 am. It has since rebounded slightly to $6.15, signifying a net daily loss of 27%. In a similar vein, Arizona-based Western Alliance Bancorporation (WAL) declined by 20.53%, from $36.18 to $28.96. Other banks, such as Zions (ZION) and Comerica (CMA), experienced losses of roughly 10%.
These daily losses are among the steepest recorded by these banks since mid-March’s collapse of Silicon Valley Bank and Signature Bank. Western Alliance and First Republic plummeted by a staggering 76% at that time, PacWest by 47%, and none have seen a significant recovery since. In terms of deposit losses, First Republic suffered the most significant reduction, at 41% in the first quarter, followed by PacWest and Western Alliance, which lost 17% and 11% of deposits, respectively. Customers have been flocking to larger banks, which they perceive as more secure or offering higher yields in money market funds.
Mixed signals from Treasury Secretary Janet Yellen about her department and the Federal Reserve’s willingness to backstop deposits at smaller banks further intensify the situation. Previously, Yellen indicated that the government would only support banks deemed to pose a “systemic risk” to the banking system, inciting concerns that depositors may abandon smaller banks in favor of larger, supposedly protected firms.
In response to the plummeting stock prices, BitMEX co-founder Arthur Hayes forecasted that PacWest would be the next bank to fail and come under the jurisdiction of the Federal Deposit Insurance Corporation. The collapse of Silicon Valley Bank in March bolstered Hayes’ confidence in Bitcoin, propelling the cryptocurrency from $20,000 to $28,000. Similarly, Bitcoin experienced a modest surge on Tuesday, from $28,000 to $28,566.
Ultimately, faced with uncertainty surrounding governmental support for smaller banks, and as larger banks continue to appear more protected, the future of smaller financial institutions remains precarious. The ensuing consequences on the financial markets, as well as the potential impact on the cryptocurrency sphere, are yet to be determined.