Regional bank stocks slid again on Friday on fears that more banks might fail or need intervention from the government.
The KBW Regional Bank index fell by nearly 3% from rumors that Treasury Secretary Janet Yellen said additional bank consolidations might need to occur, according to a CNN report.
DON'T MISS: PacWest and Western Alliance Shares Rebound
Bank CEOs were told by Yellen that regional banks may need to be acquired by larger banks, CNN said.
Yellen met with JPMorgan Chase CEO Jamie Dimon, Citigroup CEO Jane Fraser and Bank Policy Institute board members on May 18 in Washington.
A total of two dozen CEOs and executives were present at the meeting, the Treasury Department said.
A readout given by the Treasury Department said Yellen discussed the banking system and "reaffirmed the strength and soundness of the US banking system.”
The readout did not include any talks about additional mergers and acquisitions.
The Treasury Department said Yellen noted that the banking system "remains well-capitalized with strong liquidity," the Treasury Department said. "She noted that decisive federal action taken by regulators and the Administration in March to protect depositors helped to strengthen public confidence in the banking system and mitigate financial contagion."
Dimon said on May 16 that it is "unlikely" that JPMorgan Chase would acquire more banks, according to CNBC. The bank acquired First Republic Bank on May 1 to bail out the ailing bank.
A shareholder asked about more deals at the annual shareholder meeting of the New York-based bank.
Interest rate risks contributed to the downfall of Silicon Valley Bank and Signature Bank. But the issues with the banks were larger than just meeting current banking regulatory requirements, Dimon said.
“Regarding the current disruption in the U.S. banking system, most of these risks were hiding in plain sight,” Dimon said.
The collapse of Silicon Valley Bank, Signature Bank and First Republic Bank in March and April could lead to further bank mergers even though the Biden administration has frowned upon consolidation since it leads to less competition.
The bailout of the three banks after they were seized by federal regulators shook the market's confidence as shares sunk when investors expressed their fear.
The bank collapses the past two months were the worst bank failures since 2008 during the Great Recession.
Regulators typically seek out stronger banks to acquire smaller banks.
But the banking industry can not avoid more deals.
“Consolidation is inevitable,” said Ed Mills, Washington policy analyst at Raymond James, according to CNN. “The progressive backlash is the Catch-22.”
Volatility in PacWest and Western Alliance Stocks
Shares of the regional banks PacWest and Western Alliance had soared this week, after they had slumped following the collapse of three U.S. banks.
But shares of PacWest (PACW Get Free Report fell by 3% to $5.66 on Friday while Western Alliance's (WAL Get Free Report shares declined by 3.35% to $34.
Los Angeles-based PacWest had reported that its deposit base declined 9.5%, or $1.8 billion, during the week ended May 5.
In March, PacWest abandoned plans to raise capital since bank stocks were pummeled in the wake of Silicon Valley Bank's collapse.
PacWest had said in April that 75% of its $28.2 billion deposit base fell within the FDIC's protection threshold.
The FDIC insures $250,000 in deposits per account, but recently recommended increasing the threshold to avoid future bank runs.The bank said it had $15 billion in "immediately available" liquidity, which was set against the $5.2 billion of deposits that weren't covered by the FDIC's $250,000 threshold.
"On the afternoon of May 3, 2023, PacWest was featured prominently in the financial news headlines with reports that PacWest was 'exploring all of its options and having talks with potential investors and partners,'" the bank said in a filing with the Securities and Exchange Commission.
"The news headlines increased our customers' fears of the safety of their deposits," the bank said in the filing. "During the week ended May 5, 2023, our deposits declined approximately 9.5%, with a majority of that decline occurring on May 4th and May 5th after the news reports on the afternoon of May 3rd."
Western Alliance's shares slumped early this month, but investors have become more confident. The Phoenix lender on May 10 reported a $1.8 billion boost to its deposit base, taking it to $49.4 billion.Investors supported regional-bank stocks after the Federal Reserve published data indicating that most of the lending from its emergency facilities was directed toward First Republic before it was sold to JPMorgan Chase on May 1.
Banks borrowed $5.3 billion from the Fed's main discount window over the seven-day period ended on May 3, according to Fed data, a decline from the $73.9 billion handed out over the prior period.
