US regional banks slip again as PacWest leads peers lower following Fed’s lending survey
US regional banks continued their slide on Tuesday with Western Alliance dragging down a number of its peers the day after the Fed’s latest lending survey.
LA-based lender PacWest was trading nearly seven per cent lower while Western Alliance was nearly five per cent lower. Fellow struggling regional lender Comerica was 3.6 per cent down. The KBW Regional Bank Index was trading 1.2 per cent lower.
The sector has faced heavy scrutiny after three banks have collapsed in the space of a few months. Both PacWest and Western Alliance experienced significant deposit outflows in the first quarter, although these have rebounded slightly since the end of March.
While the banks argue they are financially secure, markets have continued to be volatile with calls for regulators to step in to calm the sector, potentially by insuring all deposits.
Investors are debating whether the volatility represents adjusted expectations for the banks’ long term profitability or market manipulation from short-sellers.
The share price slide comes a day after the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) revealed credit conditions continued tightening in the first three months of the year.
Net 46 per cent of banks tightened terms of credit for a key category of business loans for medium and large businesses, up from 44.8 per cent in January.
Analysts suggested that this tightening was less to do with the banking turmoil and more about the Fed’s rate hiking campaign.
Capital Economics’s Paul Ashworth said “the recent turmoil in the banking sector doesn’t appear to have triggered a severe further tightening in credit conditions” but that the data did point to a large potential for a recession.
Similarly, Deutsche Bank’s Jim Reid commented the data “wasn’t as bad as it could have been given the recent US regional banking woes, but it’s still at levels consistent with a recession later this year.”
The Fed also released its biannual financial stability yesterday cautioning that the credit contraction may continue despite the “decisive actions” from regulators. This could potentially accelerate the onset of a recession.
It warned that a “sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”