First Republic (FRC) lead U.S. banking stocks powered higher Tuesday, which were building on gains from the Monday session and adding to a noted improvement in broader market sentiment, after Treasury Secretary Janet Yellen suggested officials could offer extended support to American depositors.
In prepared remarks for a speech she'll deliver to the American Bankers Association conference later today, Yellen defended moves by the Treasury, in concert with the Federal Deposit Insurance Corporation, to guarantee deposits at the failed Silicon Valley Bank and Signature Bank earlier this month, noting that "similar actions could be warranted if similar institutions suffer deposit runs that pose the risk of contagion".
Her remarks follow a report from Bloomberg that suggests the Treasury is studying options that would allow for a temporary guarantee of all U.S. deposits, possibly by leveraging the Exchange Stabilization Fund, without the need for Congressional approval.
At present, the FDIC provides deposit protection up to $250,000 per account, although that limit was increased by the Treasury to protect customers at the failed Silicon Valley Bank and can be lifted if needed to protect an institution the Treasury deems systemically important.
"Let me be clear: The government's recent actions have demonstrated our resolute commitment to take the necessary steps to ensure that depositors' savings and the banking system remain safe," Yellen will say.
First Republic (FRC) shares, which remain mired in headline risk amid reports of a potential capital increase and further credit downgrades following its $30 billion deposit boost last week, were marked 53.2% higher in early afternoon trading to change hands at $18.66 each.
Western Alliance (WALPL) shares, meanwhile, rose 21.8% to $35.57 each while Pacwest Bancorp (PACW) jumped 21% to $12.44 each.
The Mid-Size Bank Coalition of America, a lobby group, is also seeking a blanket deposit guarantee that lasts for at least two years, while Democratic Senator Elizabeth Warren, a vocal critic of U.S. banking regulations, is asking Congress to lift the cap on FDIC insured deposits, potentially to as high as $10 million, in order to truly stem the regional banking sector crisis.
"Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills," Warren told CBS's 'Face The Nation' program Sunday. "Nonprofits need to be able to do that. These are not folks who can investigate the safety and soundness of their individual banks. That's the job the regulators are supposed to do."
Last week, in an effort to ease concerns over the health of U.S. bank deposits, the Fed launched a new bank lending program, which offers unlimited funds -- if backed by high quality collateral -- to stressed U.S. lenders.
Those securities will not be subject to the usual discount, or haircut, when used as loan collateral, the Fed said, allowing U.S. banks to get fast cash based on their full par value.
Banks are sitting on an estimated $620 billion of unrealized losses from Treasury, agency and MBS bonds following the surge in market interest rates that has swamped fixed income portfolios worldwide.
Big bank stocks were also on the move Tuesday, with JPMorgan (JPM) rising 3% to $130.87 each and Bank of America (BACXL) jumping 3.8% to $28.82 each amid improving sector sentiment.
Risk sentiment indicators do appear to have improved, however, with benchmark 2-year Treasury note yields rising past 4% in overnight trading, and last seen at 4.177%, while 10-year note yields were pegged at 3.581%.
Market volatility gauges were also in retreat, with the CBOE Group's VIX index falling 5.7% in the early session to 22.7 points. The U.S. dollar index, meanwhile, was marked 0.03% lower against a basket of six global currency peers and trading at 103.257.
On Wall Street, the S&P 500 was marked 31 points higher in early afternoon trading while the Dow Jones Industrial Average gained 170 points. The tech-focused Nasdaq was up 122 points gain amid the bump in Treasury bond yields.
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