Investors, reeling from the most serious string of banking failures to hit the US since 2008, are fleeing smaller lenders seen as at risk of falling next. Shares in California-based PacWest plunged 50%, while Western Alliance also tumbled nearly 40%. The US Treasury Department said it was monitoring developments "closely". "The banking system has substantial liquidity and deposit flows are stable," an official said.
Shares in regional banks have been pummeled since March, when the failure of Silicon Valley Bank - then the country's 16th largest lender - ignited concerns about how the industry will adjust to the steep rise in interest rates that started last year. Investors sold off banking shares and customers rapidly started shifting funds to larger banks seen as safer, prompting the collapse of Signature Bank a few days later and First Republic this week. These failures were the biggest in US history, except for the collapse of Washington Mutual during the 2008 financial crisis.
Investors are now anticipating trouble at other banks, as they come under pressure to follow interest rate rises with higher rates on customer deposits. At the same time higher rates are hurting the market value of some of their assets, which are returning lower rates of interest. The sell-off in bank shares picked up pace this week, after First Republic was seized by regulators and sold to America's biggest bank, JPMorgan Chase.
Source: BBC