PacWest Remains Wobbly, Regional Banks Under Pressure as Repeat of 2008 Crisis Feared

With the crisis at California bank PacWest worsening, concerns over a banking crisis similar to that of 2008 are growing by the day. The Pacific Western (PacWest) bank lost nearly 10 percent more of its depositors last week, indicating that the customers are increasingly fearful of the safety of their money at the bank. Regional bank stocks plummeted on Thursday, after the latest reports indicated that the crisis at PacWest was worsening.

PacWest is the 'Weakest Link'

PacWest's crisis followed the spectacular failures of Silicon Valley Bank, Signature Bank and First Republic Bank. These bank crashes stemmed mainly from unprecedented levels of customer withdrawals, following negative reports about cash position, profitability and stability.

PacWest bank
PacWest bank PacWest bank

The shares of PacWest have lost more than a whopping 70 percent so far this year. Last week, trading in PacWest stock was halted multiple times after it crashed nearly 40 percent on a single day.

Following the collapse of SVB, Signature and First Republic, customers have been moving money to bigger banks. PacWest had come under strain in March but the crisis snowballed after the report said earlier this month that the bank was planning a capital raise.

PacWest stock was down as much as 33% on Thursday. "PacWest is starting to look like the weakest link and some traders are wondering if they will fail or have a sale," Ed Moya, a senior market analyst at Oanda, said, according to CNN.

Another Crisis Brewing?

Some analysts fear that the series of bank failures this year indicate the possibility of another financial crisis similar to that of 2008. They point out that as many as 25 banks failed in 2008, triggering the great banking crisis that eventually led to the crash of 400 banks and years-long financial crisis around the world.

First Republic Bank
First Republic Bank Wikimedia Commons

At present it does not look like PacWest is seeing an impending crash as it has cash balance of more than $15 billion while its uninsured loans are only about $5 billion. However, analysts fear that the crash of PacWest, if it happens, will create a domino effect.

"One of those dominoes could be PacWest Bancorp. Shares of the bank were down as much as 30% on Thursday after it reported customers recently withdrew 9.5% of its total deposits," the report says.

PacWest said on Thursday it has taken measures to avert a crisis. It said it has pledged more than $5 billion to the Federal Reserve's discount window. This will help the bank get an additional borrowing capacity of nearly $4 billion.

"We pledged additional assets as collateral for borrowings to increase our liquidity position for potential deposit outflows," the bank said, according to Yahoo Finance.

Other Regional Banks Under Pressure

Western Alliance bank
Western Alliance bank

Shares of Western Alliance have been wobbly after a Financial Times report last week that said the bank was considering a sale of parts of its business. Western Alliance shares plummeted nearly 60 percent after the FT report. However, the lender denied the report categorically, restoring some confidence in the stock. On Wednesday, the Phoenix-based bank however, said its deposits rose by $600 million. Last week, more regional banks looked vulnerable. Shares of Zions Bancorp and Comerica dropped even as TD Bank Group and First Horizon Corp cancelled their planned merger.