Calm for now: US regional banks make small gains ahead of Fed rate decision
Regional banks in the US notched small gains on Wednesday as the sector seemed to calm down following yesterday’s sell-off.
Pacwest was trading 3.3 per cent higher while Western Alliance was up 2.1 per cent. The KBW Regional Bank index was up 1.2 per cent.
Larger lenders were more mixed. JP Morgan was down 1.1 per cent while Bank of America was 0.1 per cent down. Citi was up marginally.
The gains came after a steep sell-off yesterday, which sparked concerns the crisis in the banking sector might not have reached its end.
Yesterday Pacwest closed down nearly 30 per cent while Western Alliance fell over 15 per cent. In the year-to-date the banks are down around 70 per cent and 45 per cent respectively.
Both banks have been under threat as they have similar business models to SVB and First Republic, mixing a high ratio of uninsured deposits with a large portfolio of long-dated and low-yielding assets.
“Stocks in regional banks are showing some stability in today’s trading session following a deep sell-off yesterday. We expect continued volatility amid concerns on banks’ deposit stability, rising funding costs and heightened regulation,” Herman Chan, analyst at Bloomberg Intelligence, said.
While turmoil in the banking sector is likely to tighten credit conditions, the US Federal Reserve is unlikely to ease off its rate hikes when it makes its latest interest rate decision today.
The Fed is expected to lift rates by 25 basis points. Markets expect this will be the last hike in the current hiking cycle.
“The [Federal Open Market Committee] looks set to shrug off the latest banking sector turmoil and deliver another, probably final, 25bp rate hike today. But we think it will turn to rate cuts soon, and cut further than is currently discounted by the end of 2024,” analysts at Capital Economics said.