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Following a steep decline throughout the week, shares of various US regional banks experienced a notable surge on Friday, May 5th. PacWest recorded the most substantial increase during the day, closing over 82% higher. Despite this positive shift, the majority of the banks’ shares remain considerably lower than their opening values on Monday.
Regional Banks Experience Significant Rally on Friday Yet Fail to Offset Weekly Losses
On Friday, the stocks of several American regional banks saw a considerable rally. PacWest’s shares marked the largest increase, closing the trading session at $5.76, up 81.70%. However, despite the rally, the bank’s stock is still down more than 43% since Monday, having faced a sharp decline on Wednesday following reports of its search for a buyer.
Western Alliance also experienced a significant increase of 49.31% on Friday. The bank faced turmoil on Thursday when its shares plummeted nearly 50% after a Financial Times article suggested it, similar to PacWest, was exploring strategic alternatives. On the same day, the bank’s shares fluctuated and slightly rebounded after it issued a statement asserting that the initial report was inaccurate.
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Although First Horizon Bank also saw a decline of around 37% for the week, its shares did not recover as much as the other two banks on Friday. Its stock rose only 8.75% by the market’s close, primarily due to a failed merger with the Toronto-Dominion Bank.
What Caused the Decline of US Regional Banks This Week?
The primary catalyst for the selling pressure faced by several US regional banks this week was the receivership and sale of First Republic early on Monday. This regulatory action reignited the banking crisis that had been relatively subdued for about a month, originating in the first half of March.
Between March 8th and 13th, three US regional banks—Silvergate, Silicon Valley, and Signature—were either liquidated or shut down by regulators. Although the government subsequently enacted emergency measures to stabilize the situation, these efforts did not fully restore confidence after it was disclosed that the banks were borrowing from the discount window at rates not seen since 2008.
By mid-March, First Republic was identified as the most likely fourth bank to succumb to the crisis. Despite multiple rescue attempts, including a $30 billion infusion from some of the largest banks in the US, the institution was ultimately seized at the beginning of this week.
