United States: Investor concerns over the stability of the US banking system persisted despite the rescue of First Republic, as regional bank shares experienced a second consecutive day of sharp declines.

The sale of the troubled lender to JPMorgan Chase did not alleviate worries about the broader issues facing the banking industry, leading to significant losses for regional banks on 2nd May 2023.

PacWest Bancorp, headquartered in Los Angeles, witnessed a steep drop of nearly 30 percent in its share price. Meanwhile, Western Alliance Bank and KeyCorp also suffered significant losses, with their share prices declining by 21 percent and 10 percent, respectively.

Citigroup and Bank of America, two major lenders, also experienced declines in their share prices, albeit less drastic than those seen by regional banks. Despite the US government’s efforts to rescue San Francisco-based First Republic, which has been under scrutiny since the collapse of Silicon Valley Bank last month, banks on Wall Street faced a second day of turbulence, with regional banks experiencing significant losses.

After Washington Mutual Bank’s collapse in 2008, the failure of First Republic stands as the second-largest bank collapse in the history of the United States. On 1st May 2023, JPMorgan Chase acquired the majority of First Republic in a transaction that was supervised by the Federal Deposit Insurance Corporation (FDIC), which had previously assumed control of the struggling bank.

As part of the bailout agreement, JPMorgan Chase purchased “a significant majority of the assets” of the lender without taking on its corporate debt, and also obtained $50 billion in financing from the FDIC. In an effort to prevent a potential crisis of confidence from spreading throughout the banking sector, regional banks have been facing increased scrutiny since the March collapse of Silicon Valley Bank and Signature Bank. As part of this effort, the FDIC has agreed to cover 80 percent of losses from certain loans held by First Republic for up to seven years.

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