In The Wake Of Silicon Valley Bank's Failure, First Republic Leads The Regional Bank Rout

SVB Financial, a regional and midsized bank that failed to find a buyer amid a rapid outflow of cash from clients, was shut down by regulators on Friday as a result of a rapid outflow of cash from clients.

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PacWest Bancorp's shares fell by more than 23%, while First Republic Bancorp's shares fell by more than 20%. There was a nearly 13% drop in the share price of Signature Bank, which has heavy exposure to the crypto industry.

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There was a significant drop in the stock market on Friday as a result of a large sell-off on Thursday. It would be the worst week for the S&P Regional Bank ETF since March 2020 as it is down about 15% for the week.

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As a result of SVB's announcement on Wednesday that it had lost $1.8 billion on an asset sale and was seeking more funds, the company came under pressure. Trade Algo reported Friday that the fundraising effort had failed and that SVB was exploring the possibility of selling the company. However, Trade Algo also stated that due to the rapid outflow of deposits from the bank, the sale process was becoming more difficult.

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The Federal Deposit Insurance Corporation said at noon on Friday that it would take over insured deposits at the bank after regulators announced they were shutting down the bank. Shares of regional banks had recovered some of their morning losses, but news of SVB's failure sent them plummeting once more.

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While SVB's situation is somewhat unique due to its funding base being focused on technology startups, other banks with large bond portfolios might be faced with similar difficulties as well if they were forced to sell those bonds before maturity in order to raise funds. Since the Federal Reserve hiked rates eight times in the last 12 months, Treasurys have seen a decline in value.

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If those bonds are sold, they may incur losses similar to those that Silicon Valley Bank has experienced in the past.

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Although Wall Street analysts believe that the issues at SVB are unlikely to spread to the rest of the banking sector, shares of the big banks were down on Friday as well.

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A majority of the assets involved are Treasury securities, which are not subject to the risk of default and will retain their value at maturity as opposed to the mortgage-backed securities that collapsed in value due to the default of housing loans during the financial crisis of 2008-2009.

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