The Fed Persists With Rate Increases Despite Industry Turmoil, Causing Regional Bank Shares To Fall

Regional bank stocks fell sharply on Wednesday as investors assessed the Federal Reserve's recent interest rate rise as well as comments regarding the soundness of US financial institutions.

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The SPDR S&P Regional Bank ETF (KRE) fell 5.7% on the day. It hit a new session low during Fed Chair Jerome Powell's news conference before falling further in the last half hour of trade. PacWest Bancorp was down 17.1%, while First Republic Bank fell 15.5%.

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Since the failure of Silicon Valley Bank triggered a larger industry crisis, the destiny of regional banks has been in doubt. First Republic and PacWest have fallen by 89.2% and 63.5%, respectively. Since the beginning of the month, dragging the KRE down 29.4% during the same period.

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The declines on Wednesday are the result of the Fed's decision to impose a quarter percentage point interest rate rise, despite Fed estimates indicating only one more boost this year.

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The Federal Open Market Committee stated in a statement that the US financial system is resilient, but that current instability may have an impact on the economy.

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"The financial system in the United States is solid and resilient," the FOMC stated in its statement. "Recent events are expected to tighten lending conditions for families and companies, weighing on economic growth, hiring, and inflation."

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At his news conference, Powell stated that the flaws found in Silicon Valley Bank were not visible in the larger economy. He also stated that deposits in the banking sector had leveled out in the recent week.

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"What I'm saying is that you've seen that we have the instruments to safeguard depositors when there is a substantial threat to the economy or the financial system, and we're willing to employ those capabilities," Powell said. "I believe depositors should assume their monies are secure."

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The slump in regional bank shares was exacerbated by comments by Treasury Secretary Yellen, who told the U.S. According to a Senate appropriations panel, the United States is not currently working on "blanket insurance" for bank accounts.

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Despite a vow from a group of banks to pump $30 billion in deposits into the First Republic, the stock fell over 70% last week as investors became increasingly wary. The move was intended to be a show of confidence, but the First Republic is considering more action. According to Trade Algo, JPMorgan is counseling the bank on ways to assist it, including a capital raising or sale.

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PacWest reported Wednesday that it has lost more than $6 billion in deposits as the survival of midsized banks has been called into doubt. Nonetheless, the bank stated that it has no plans to raise further capital. Despite the drop on Wednesday, PacWest was still up 9.1% since the beginning of the week.

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Yellen stated on Tuesday that the government was prepared to take additional steps to ensure the safety of deposits, including backstopping if there were any concerns of contagion.

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