On Thursday morning, Federal Reserve officials assured the banking system was secure and intact. However, PacWest stock continues to plummet as investors remain uncertain about several aspects of the U.S. financial sector.
Hoping to stop the hemorrhaging, Federal Reserve Chair Jerome Powell called a press conference to declare the banking system is “sound and resilient” despite this year’s collapse of several notable financial institutions.
“We are committed to learning the right lessons from this episode and will work to prevent events like these from happening again,” Powell assured.
On Monday, the San Francisco-based First Republic Bank failed. Its collapse followed the failures of California’s Silicon Valley Bank and New York’s Signature Bank.
First Republic Bank faltered as anxious investors withdrew funds from accounts that exceeded Federal Deposit Insurance Corporation protection levels.
JPMorgan Chase reportedly agreed to a purchase plan to seize control of and absorb First Republic.
The Daily Wire reported that PacWest, a regional financial institution, is among several banks noting sharp declines in stock value this week. Stock values declined more than 45% in the last 30 hours, fell more than 67% in the last five days and plummeted almost 87% in the last two months.
PacWest executives are reportedly considering “strategic options.” On Wednesday, a spokesperson confirmed that bank officials are in talks with “potential partners and investors.”
The spokesperson’s statement noted: “The company will continue to evaluate all options to maximize shareholder value. The bank has not experienced out-of-the-ordinary deposit flows following the sale of First Republic Bank and other news.”
The Federal Reserve has noted it will guarantee investor funds and, on Wednesday, announced a quarter-point target federal funds rate hike.
The rate hike is a measure designed to address inflationary pressures but can constrain economic activity as the cost to borrow funds increases.
Notably, federal interest rate hikes contributed to substantial Silicon Valley Bank losses as executives were forced to liquidate a long-term bond portfolio to cover demands for withdrawals.
A National Bureau of Economic Research report notes that recent Federal Reserve interest rate adjustments have resulted in banking system assets being “$2 trillion lower than their book value.”
Several fiscal policymakers report that the instability in the financial system indicates a recession is on the 2023 horizon, followed by a recovery in 2024–2025.
An excerpt from minutes taken at a recent Federal Reserve meeting read:
“If banking and financial conditions and their effects on macroeconomic conditions were to deteriorate more than assumed in the baseline, then the risks around the baseline would be skewed to the downside for both economic activity and inflation, particularly because historical recessions related to financial market problems tend to be more severe and persistent than average recessions.”
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