First Republic Bank headquarters is seen on March 16, 2023 in San Francisco, California.
Tayfun Coskun | Anadolu Agency | Getty Images
Regional bank stocks spiraled lower Wednesday as investors weighed the Federal Reserve’s latest interest rate hike and commentary about the health of U.S. financial institutions.
The SPDR S&P Regional Bank ETF (KRE) closed down 5.7%. It reached a new session low during Fed Chair Jerome Powell’s press conference and then took another leg down in the final half hour of the trading day. First Republic Bank ended down 15.9%, while PacWest Bancorp slid 17.1%.
The fate of regional banks has been in question since the closure of Silicon Valley Bank sparked a broader industry crisis. First Republic and PacWest have dropped 89.2% and 63.5%, respectively, since the month began, pulling the KRE down 29.4% over the same period.
Wednesday’s drops come on the back of the Fed’s decision to implement a quarter percentage point interest rate hike, while Fed projections signaled there will only be one more hike this year.
The Federal Open Market Committee said in its statement that the U.S. banking system was resilient, while noting recent turmoil could impact the economy.
“The U.S. banking system is sound and resilient,” the FOMC said in its statement. “Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation.”
Powell said during his press conference that the weaknesses seen in Silicon Valley Bank were not apparent in the broader sector. He also said deposits in the banking system have stabilized over the last week.
“What I’m saying is you’ve seen that we have the tools to protect depositors when there is a threat of serious harm to the economy or to the financial system, and we’re prepared to use those tools,” Powell said. “I think depositors should assume that their deposits are safe.”
Adding to the drop in regional bank shares were comments from Treasury…
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