PacWest and Western Alliance- Corriere.it collapse

The wave of crisis continues for regional banks in the USA. In recent days PacWest, a credit institution based in Los Angeles, has lost almost 50% on the stock market (yesterday’s session, Thursday 4 May, closed at -36% after having also touched -61%) after the news of his search for possible buyers for his assets, exactly as it was for First Republic Bank bailed out by JP Morgan. The reassurances of Jerome Powell, president of the Fed, who continued to reaffirm the solidity of the American banking system, and those of the bank itself, which in a press release explained in a press release: The institute has not recorded a flight of deposits out of the ordinary after the sale of First Republic Bank.

US regional banks

PacWest was not, however, the only victim of the financial markets. The same scenario occurred for Western Alliance, which lost 22%, after also reaching -62%. Investors lost faith in the bank after the Financial Times announced the possible sale of its assets, due to outflows of deposits and in general to the problems of the US banking sector. Also in this case it does not matter that the institute has denied the indiscretion. For the cascading effect, Wall Street had a bad session also other regional banks: Zions Bank (-18%), Keycorp (-14%) and First Horizon (-32%). For the latter, above all, the failed merger with the Canadian giant Toronto Dominion has had an influence.

The spread of the crisis

The main concern of the financial markets is inevitably linked to the fact that the banking crisis, instead of stopping, seems to be spreading. After the first collapses, in March, of Silicon Valley Bank, Signature Bank and First Republic Bank, with PacWest and Western Alliance the number of bankrupt banks would rise to 5. The fact that they are medium-small banks may lead us to believe that may be easier to contain the crisis, but put together – according to some data collected by Bloomberg – assets come to a value of 700 billion dollars (Lehman Brothers had 691 at the time of its bankruptcy). The only difference from 2008 concerns the lack of international commercial connections of American regional banks, an aspect which makes it more difficult to extend the crisis abroad. But the damage to the local area is not negligible, especially to startups and small and medium-sized enterprises that have relied on them.

Interest rates at record levels

Another investor fear is that these banks will no longer be able to keep going as interest rates continue to rise, which in turn discourages borrowers. For the first time in the United States they exceeded 5%: confirming expectations, in fact, the Federal Reserve increased the cost of money by 0.25%. This is the tenth consecutive rise, which led the Feds funds, i.e. the reference rates, in the range of 5-5.25%, the highest level since mid-2007. It is speculated, however, that this may be the latest intervention by the central bank. Support for the new tweak has been very strong, we’re getting close, but maybe we are, said President Jerome Powell. But it will be an ongoing evaluation, meeting by meeting.