Regional bank stocks, including PacWest Bancorp (PACW), Western Alliance Bancorp (WAL), Comerica (CMA), and Zions Bancorp. (ZION), continued to be volatile and were up in morning trading today due to some positive indicators for these banks.
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The Federal Deposit Insurance Corp. (FDIC) proposed last week that it would charge banks based on their amount of uninsured deposits above $5 billion at the end of 2022. This would result in replenishing the losses in the FDIC’s deposit insurance fund and would tilt the costs in replenishing this fund toward larger banks. This could result in smaller regional banks offering deposit rates at a competitive rate.
Meanwhile, the Wall Street Journal reported late last week, citing data from bank data provider FIG Insight that paper losses or total unrealized losses, that is, the difference between securities’ cost and fair market value, shrunk to $67 billion at the end of the first quarter, from $78 billion at the end of last year. This data was for banks with assets in the range of $10 billion to $100 billion and was due to a drop in interest rates pushing up the value of some securities while other securities matured or were sold off.
These positives aside, the talk of short-selling in bank stocks still continues. Short sellers typically borrow shares with the expectation that prices will drop, and if all goes according to plan, they buy back the shares for a profit. Given the current economic uncertainty with the possibility of the U.S. defaulting on its debt and falling commercial real estate values, continued stress on U.S. banks is a worrying factor.
This prompted White House Press Secretary Karine Jean-Pierre to state earlier this month, “I can say the administration is going to closely monitor the market developments, including the short selling pressures on healthy banks. I would have to refer you to the SEC on any possible actions, but certainly this is something that we’re going to continue to monitor.”
The volatility in regional banking stocks has, however, resulted in dragging down the Invesco KBW Regional Banking ETF (KBWR) by more than 30% in the past three months.
