Banking stocks were broadly higher on Wednesday after the Federal Reserve hiked interest rates and signaled it may soon ease its inflation-control campaign.
Fed officials said the US banking system was “solid and resilient,” echoing language from the central bank’s March statement.
Shares in banks big and small remain well below levels before the collapse of the first of several lenders in March, despite government safeguards and reassurances from policymakers and bankers that the system is secure.
The KBW Nasdaq Bank Index rose less than 1% after the Fed’s decision. The index has lost around a quarter of its value in the past two months.
Shares of mid-sized and small banks fell to their lowest levels since 2020 on Tuesday as investors digested the weekend’s seizure and sale of First Republic, a larger regional bank that was struggling to stay afloat after problems in the industry were revealed to keep.
The ongoing pressure is a sign that concerns about the industry could run deeper than just a few struggling banks.
“Finally, over the past 48 hours, existentialism has come into the picture, with growing voices from investors questioning the role and existence of regional banks,” wrote Terry McEvoy, banking analyst at Stephens, in a research note.
Higher interest rates have prompted clients to shift deposits into Treasuries and money market funds in search of higher yields. Recent collapses accelerated this shift, as some moved funds from regional banks to the perceived safety of larger institutions.
On Wednesday, the SPDR S&P Regional Banking ETF was up about 1.5%. Bank stocks, hit hardest by the turmoil, tried to recover from the previous session’s double-digit losses.
- PacWest rose 3%.
- Western Alliance rose 2%.
- Citizens, US Bank and Fifth Third were up less than 1%.
- PNC and Capital One fell slightly.