Regional bank stocks hit new lows, PacWest drops 30%

Regional bank stocks suffered a sharp decline on Tuesday as the sector continued to reel from the third major bank failure this year. PacWest shares fell 24% on Tuesday, putting it on track for its fourth-straight negative session, while shares of Western Alliance dropped 16%. The SPDR S&P Regional Banking ETF also sank 6.9%. Over the weekend, regulators seized troubled regional bank First Republic and sold it to JPMorgan Chase in the third failure of a large regional bank this year, following Silicon Valley Bank and Signature Bank in March. The reasons for Tuesday's declines were not immediately clear, though some analysts pointed to the possibility of more Fed rate hikes and regulatory changes in response to the bank failures. Higher rates will make it more costly for the banks to hold onto their deposits while also lowering the market value of the long-dated bonds and loans on their books. Concern about the market value of those assets was one of the sparks for the initial run on Silicon Valley Bank in March. Some analysts believe that banks with assets over $500 billion and under $60 billion will be the clearest winners in the new world order, while banks in the $80-120 billion range may need to shrink to avoid new regulations or more actively engage in M&A to increase scale and absorb regulatory costs. Despite the recent bank failures and expected regulatory changes, there is cautious optimism that the deposit flight issues have been contained, and some regional banks have reported smaller deposit declines and even rebounds in late March. Nonetheless, the long-term profit outlook for mid-sized regional banks remains uncertain.