Shares of First Republic Bank fell on Monday despite efforts by US regulators to calm investors after the collapse of the Silicon Valley bank, leading a string of US regional banks.
Shares of First Republic were down 64% after earlier falling as much as 78%. The bank said on Sunday that it had strengthened its finances with additional funding from the Federal Reserve and JPMorgan Chase.
The selloff marked the sector’s biggest pullback in three years, reflecting deep investor concern about the health of the industry following three bank failures last week.
The KBW Nasdaq index of commercial banks fell 11%, with large lenders such as Comerica Inc and Zions Bancorp falling more than 20%. The SPDR S&P Regional Banking ETF fell 6.4%. Large banks such as JPMorgan also suffered declines, although their losses were generally less severe.
The retreat shows the extent to which investors continue to retreat from banks with large amounts of uninsured deposits. Last week’s deposit flight at SVB Financial Corp, parent of Silicon Valley Bank and Signature Bank, was at the center of the collapse. Comerica said 64% of its deposits were uninsured at the end of last year and Zion 53%, the filing shows.
The Federal Reserve and the Biden administration took emergency steps on Sunday to try to reassure Americans about the health of the financial system, but there were signs investors were worried about both individual banks and the potential economic impact of the uproar.
“When you think about banking, it really is the communications system of our economy,” said Jack Ablin, founding partner and chief investment officer at Cresett Capital. ,
The decline deepened a sharp selloff from Friday, when banks closed their worst week in nearly three years.
On Monday, shares of Western Alliance Bancorp sank as much as 84%, PacWest Bancorp fell 29% and Charles Schwab fell 11%. They were among several firms whose shares were temporarily capped for volatility soon after they opened.
Bank failures have raised questions about the funding of banks and their exposure to businesses, which investors are unlikely to prosper with rising interest rates. Bank regulators have stepped in, saying that depositors in failed banks will be made whole. Some investors argue that Signature and Silvergate were more vulnerable because they focused on crypto, while Silicon Valley catered mostly to startup companies with large deposits.
But the failures culminated in a liquidity crunch that has drawn attention to long-term bonds that some banks bought in a pandemic-induced deposit surge. They are proving problematic because the sharp increase in interest rates as part of the Fed’s effort to fight inflation means that long-term bonds with lower interest rates cannot be sold without recognizing the loss affecting capital.
“Right now there is a lack of confidence in some parts of the system,” said Jason Goldberg, an analyst at Barclays.
Not everyone was upset. There was no sign outside the First Republic branch in midtown Manhattan Monday morning as people lined up to withdraw money. The branch was letting people in just minutes before the normal opening time of 9 am.
Onlookers, some on their way to jobs in finance, paused to look through the windows, where a large number of workers waited for people to arrive.
A customer who declined to be identified confirmed that his account was a joint account, meaning it was eligible for up to $500,000 in Federal Deposit Insurance Corporation insurance. He didn’t withdraw his money. A few minutes after confirming in person, he received an email confirmation.
“If you can’t trust the FDIC, it’s a banana republic,” he said.
Write to Gina Heeb at gina.heeb@wsj.com, Ben Eisen at ben.eisen@wsj.com and Telis Demos at Telis.Demos@wsj.com.