Regional banks like PacWest have been hit with deposit outflows.
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PacWest shares dropped 17% on Wednesday following a financial update.
The lender said deposits have fallen 20% since the end of last year. Venture banking deposits have declined.
Regional banks have been shaken by deposit outflows since SVB’s collapse this month.
PacWest shares tumbled Wednesday after the bank’s update showed deposits have dropped by a fifth, leading the lender to obtain credit lines during an unsettling period of outflows from regional banks since the fall of Silicon Valley Bank this month.
The stock ended down by 17%, the loss deepening during a wider selloff in US stocks. Federal Reserve Chairman Jerome Powell said rate cuts this year are not in the Fed’s baseline expectation. Meanwhile, Treasury Secretary Janet Yellen separately told lawmakers that regulators weren’t considering providing “blanket” deposit insurance to stabilize the country’s banking system. The Fed on Wednesday raised its benchmark rate by another 25 basis points, to 4.75%-5%.
An update from PacWest’s Pacific Western Bank subsidiary added to the broader picture of stress on small and mid-sized banks as the Federal Reserve tightens monetary policy to battle inflation.
The Los Angeles-based lender said deposits fell 20% to $27.1 billion as of March 20 from $33.9 billion at the end of 2022. It had logged deposits of $33.2 billion as of March 9 in a previous regulatory filing.
There was a fall in venture banking deposits, accounting for 24% of the bank’s total deposits compared with 33% at the end of last year.
Venture capital business was vital for SVB, which centered on tech startups. SVB imploded earlier this month after a run on deposits was kicked off by news of its massive loss from the sale of bond portfolio, whose value was hammered by climbing interest rates.
Since the failure and seizure of SVB, people have moved $500 billion from smaller lenders to money market funds and big banks, JPMorgan said Wednesday. Pressure points include higher interest rates and trillions in uninsured deposits, it said.
PacWest said more than 65% of its deposit base was under the FDIC’s $250,000 insurance coverage limit and that roughly $600 million of deposits were backed by tradeable securities.
The bank said it’s “proactively taken steps to bolster its liquidity,” including borrowing $10.5 billion from the Federal Reserve’s discount window and $2.1 billion from the Fed’s emergency lending program set up after the seizure of SVB and another lender, Signature Bank.
PacWest also landed a $1.4 billion in cash from investment firm ATLAS SP Partners through a senior asset-backed financing facility.
The lender said it has “solid liquidity” and that deposit balances have stabilized. Available cash of more than $11.4 billions of March 20 exceeded total uninsured deposits of $9.5 billion.
PacWest had explored raising capital with potential investors but decided against that because “depressed market prices for regional bank stocks,” and of market volatility.
“I am proud of the efforts the entire PacWest team has taken in these challenging times to enhance our liquidity and preserve franchise value,” Paul Taylor, Pacific Western Bank’s CEO, said in the update.
PacWest shares this year have plunged 56% so far this year.