US: First Republic Bank drops 70% amid Silicon Valley Bank collapse, regional banks raise concern

The US banking system is in chaos again as shares of the First Republic Bank (FRC) dropped 70 per cent in pre-market trading on Monday. This comes after Silicon Valley Bank (SVB), the financial organisation that dealt with only tech startups in the country, collapsed. The First Republic Bank on Friday closed 15 per cent lower at $81.76. This comes despite the FRC insisting its capital and liquidity are “very strong” and that regulators rolled out measures “designed to stabilise the finance industry in the US.”

Regional banks’ shares tumble 

It was just not SVB and FRC, even other regional bank stocks tumbled, prompting trading halts. The FRC said it had access to some additional credit from Fed and JPMorgan Chase & Co. (JPM) pointing out that “total available and unused liquidity to fund its operations is still over $70 billion.” 

Regional lenders Western Alliance Bancorp (WAL) declined 82 per cent and the PacWest Bancorp (PACW) tumbled by over half before trading was halted. 

US President Joe Biden had earlier assured the country’s banking system was safe but after the collapse of SVB and Signature Bank, he called for full accountability.

The Silicon Valley Bank was hit by one of the oldest problems in the banking industry- a bank run, which led to its failure. It was one of the largest failures of a financial organisation in the US after the collapse of Washington Mutual which occurred at the height of the financial crisis over a decade ago. 

The SVB bank was hit by the downturn in technology stocks as well as when the Federal Reserve planned to increase its interest rates to combat inflation. 

Due to the collapse of SVB, many startups that had ties to the lender scrambled to pay their workers and feared that they might have to pause their projects or lay off staff.

The SVB had bought bonds worth billion of dollars using its customers’ deposits over the past few years. 

These investments were typically considered to be safe, but the value of those investments fell because they paid lower interest rates than what today a bond would pay if issued in today’s higher interest rate environment.