In the wake of the 2008 crisis, the financial giants rescued from the brink were dubbed too big to fail, and policymakers and regulators focused on rules to make sure those banks ran more safely. Meanwhile, just out of view, a different problem was taking shape: What if some banks turned out to be too small to thrive?
“Small” is a relative term. The turmoil that’s recently gripped the industry has centered on banks often referred to as regionals—which, depending on whom you ask, covers institutions with $10 billion of assets all the way up to the likes of Silicon Valley Bank and First Republic, which each had about $200 billion in assets when they collapsed. That was enough to put them in the top 20 US banks but nowhere near the top four, where size is measured in trillions. JPMorgan Chase & Co. moved the needle only slightly on its almost $4 trillion in assets when it bought the remains of First Republic, taking it off the hands of the Federal Deposit Insurance Corp.
There was some hope that the shadow over regional banks might lift after the problem of First Republic was resolved. After all, both that bank and SVB had specific problems, most notably their high levels of uninsured deposits that customers were prone to yank the moment they had a reason to worry. But the market is still having trouble shaking its anxiety. The KBW Regional Banking Index is down 30% since the start of the year, and it’s off 9.5% since May 1, when JPMorgan stepped in.
