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US sees deposits stabilizing as some regional banks reel

first republic deposits

A US official said on Sunday that the deposit outflows that left many regional banks reeling in the wake of Silicon Valley Bank’s failure had slowed and in some cases reversed, as investors tried to ascertain whether the crisis was contained.

Shares of regional banks such as First Republic Bank (FRC.N), PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) have plunged since the banking crisis started on March 8 with the collapse of Silvergate Capital Corp (SI.N) and intensified as US regulators took over Silicon Valley Bank and Signature Bank (SBNY.O).

A US official, speaking on condition of anonymity, told Reuters that deposits in the country’s banking system were stabilizing and that US banks had limited exposure to Credit Suisse Group AG (CSGN.S), the Swiss lender that teetered before larger peer UBS Group AG (UBSG.S) agreed to acquire it on Sunday.

Many of the regional banks have also said that their deposit base has stabilized. However, some of them, including First Republic and PacWest, have been seeking to raise capital privately but have been unsuccessful thus far, amid concerns from peers and private equity firms about potential losses in their investment portfolios and loan books, sources have told Reuters.

“The regional banks have come under pressure because they are less equipped to handle a withdrawal of deposits the way the big banks are,” said Mark Chandler, chief market strategist at Bannockburn Global Forex in New York.

In a move of solidarity, most of the major banks agreed on Thursday to deposit $30 billion in First Republic. Yet in a blow to the bank’s financial outlook on Sunday, S&P Global downgraded First Republic’s credit rating deeper into junk territory, and warned that another downgrade was possible, citing the impact of deposit outflows.

Sources said on Sunday that First Republic was still trying to put together a capital raise but that no deal was imminent.

First Republic said in a statement it was “well positioned to manage short-term deposit activity.”

At least four US lawmakers said on Sunday they would consider whether a higher federal insurance limit on bank deposits than the current $250,000 threshold was needed to inspire more confidence in the system.

Billionaire investor Warren Buffett, who helped rescue some banks during the 2008 financial crisis, has held discussions with senior US officials about the banking crisis, a source said on Saturday. Buffett has yet to prop up any of the regional banks.

The Federal Deposit Insurance Corporation (FDIC), the US regulator that took over Silicon Valley Bank and Signature Bank, made some progress on Sunday in returning one of them to the private sector.

It said New York Community Bancorp (NYCB.N) would purchase deposits, loans and 40 branches from Signature Bank. New York Community will purchase $12.9 billion of loans at a discount of $2.7 billion. The FDIC estimated the deal would cost its Deposit Insurance Fund approximately $2.5 billion, highlighting the government backstop that was needed to clinch the deal.

The FDIC failed, however, in its effort to find a buyer for the entirety of Silicon Valley Bank this weekend and will now seek new bids for parts of the bank on Wednesday and Friday, sources told Reuters.

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