First Republic led a comeback rally in regional bank shares Tuesday, as investors hoped for some sort of strategic action by the troubled bank — or another big regulatory move — to stem the downward spiral in the sector.
The move comes after a speech from Treasury Secretary Janet Yellen was released that said the government could backstop the deposits at more banks if there was risk of contagion. Regional bank stocks have been under pressure since a large outflow of deposits lead to the failure of Silicon Valley Bank and Signature Bank. Regulators guaranteed the deposits at those banks after they were closed.
“The steps we took were not focused on aiding specific banks or classes of banks. Our intervention was necessary to protect the broader U.S. banking system,” Yellen said Tuesday in remarks prepared for a speech to the American Bankers Association. “And similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion.”
First Republic shares soared 15% in Tuesday premarket trading, following a 90% plunge so far in March and hitting a record low on Monday. The SPDR S&P Regional Banking ETF gained 3.5% in early trading, following a 29% slide in March so far.
First Republic has been seen as one the remaining regional banks most at risk for the same fate as SVB, due to the large percentage of uninsured deposits it had as of the end of the fourth quarter. JPMorgan led a group of 11 banks last week that deposited a combined $30 billion into First Republic, but its stock has continued to decline.
CNBC’s David Faber reported Monday that JPMorgan Chase is giving advice on alternatives to the San Francisco bank. Those alternatives include a capital raise or possibly even a sale, sources told Faber. CNBC’s Kayla Tausche reported Tuesday that the capital infusion would come only if a sale fails to materialize.
Also helping sentiment was a report by Bloomberg News that the Treasury Department is studying whether regulators have the authority to temporarily insure deposits above the current Federal Deposit Insurance Corp. cap without approval of Congress, citing people with knowledge of the talks. Though, the report said these government officials don’t believe such drastic action is necessary yet.
“There has been speculation that the limit could be doubled, and further speculation that the FDIC could decide to insure all deposits,” wrote Alexander Twerdahl, a Piper Sandler analyst, in a recent note. “In actuality, it would take an act of Congress to change the FDIC’s insurance limit and our understanding is that it isn’t an issue that is likely to be taken up any time soon.”
