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U.S Regional Bank Crisis- Explained

The U.S. banking sector has faced severe turmoil and has left investors, and people around the globe stunned. The unfortunate turn of incidents began with the collapse of Silicon Valley Bank and further concluded with the toppling of First Republic Bank. U.S. regulators sized and further sold the assets of First Republic Bank to the biggest bank in the country, JPMorgan Chase. It was an attempt by regulators to halt the turbulence.

Stock Market Collapse

First Republic Bank was founded in 1985. FRB was the 14th largest bank in the U.S.A. and had total assets worth $229 billion and total deposits of $104 billion as of April 13, 2023. FRB received a lifeline of $30 billion in mid-March. Moreover, the bank eventually failed. These two major events have adversely affected the crowd’s expectations. Even the stock prices of local lenders are affected by the same.

The collapse of First Republic Bank is the largest bank failure after the 2008 financial crisis.

Why did the Banks collapse?

Over the last year, interest rates in the U.S have gone up from 0.25% to 5.00%. This has had an adverse impact on overall borrowing in the country. Banks who held long term maturity bonds were getting a yield of close to 1-1.5%, while the current interest rate was close to 4.5-5%. Banks were incurring losses on the bond portfolios but there were no real casualties till March 2023.

SVP Financial Stock slamps

In March 2023, Silicon Valley Bank decided to sell a part of its loss-making bond portfolio and that caused a scare in the market that things are not as expected in the regional bank sector. This led to a bank run in 48 hours, in which the stock price plummeted by more than 90% and customers wanted to withdraw their money. The FDIC, which insures deposits up to 2,50,000$ for all banks, stepped in and assured the customers that their deposits were safe. This led to a chain reaction as other banks with similar exposure got hit by lower stock prices and customers looking to withdraw their money.

The primary reason for those is the rapidly increasing interest rates, high deposits lacking insurance, regulatory rollbacks, and lack supervision by the U.S. Federal Reserve. The same has affected the stock market and several other segments too. Crowd mentality also seems to be affected, seeing the hindered growth rate of other major banks.

Philadelphia SE KWB Bank

First Republic Bank was the last in the chain of banks which saw a bank run and was eventually sold off to JP Morgan Chase. This was the last straw in the regional bank crisis, and it helped calm the nerves of investors and customers of regional banks.

Impact on the Banking Sector

The collapse of Silicon Valley Bank (SVB) and Signature Bank with astounding speed brewed trouble in the regional banking sector. The last three months have brought three of U.S. history’s four largest bank failures. First Republic, SVB, and Signature Bank stand second, third, and fourth among the largest bank failures in U.S history. In the 2008 recession, Washington Mutual went bust and was acquired by JPMorgan. These three banks held assets worth $532 billion and surpassed the $526 billion worth of assets owned by 25 banks that failed in 2008. The current regional banking crisis is troublesome, and several factors have caused the same.

The Intensifying Crisis Awaits

Commercial bank Deposits

Such incidents affect the behavior of investors and retail traders that keep a trading system intact. Keeping in mind things do not seem to be very promising for the U.S. banking sector, it will be very unlikely that the market will recover the losses in a short period.

In such cases, price degradation becomes persistent, and traders’ general behavior becomes selling the held assets. Traders and investors do not wish to catch a falling knife, and in the case of the U.S. bank sector, this is the case. Major banks need to take concrete action to prevent this consistent fall in price.


The U.S. bank sector has taken a downward leap which is estimated to continue for a while. The fall of two major banks, First Republic and Silicon Valley has made things more unpredictable in the U.S. banking sector and complicated. These incidents have adversely affected the crowd mentality and will supposedly cause major issues. This downward leap is also due to policies made by U.S. regulators. It will take significant time for the segment to recover from existing losses.