No depositor left behind

After its “don’t call it a bailout” bailout for Silicon Valley Bank and Signature Bank depositors, the US government is doubling down on its new no-depositor-left-behind strategy.

Driving the news: Just yesterday, US Treasury Secretary Janet Yellen said the US is ready to protect uninsured deposits if another bank fails—a move that tells depositors at smaller banks, “Hey, your money is safe, so please don’t withdraw it and cause another bank run.”

  • Treasury officials are also reportedly studying ways to temporarily expand the Federal Deposit Insurance Corp’s US$250,000 cap on insurance, just in case.

Why it matters: Much like yawning, bank failures can be contagious. The world already has at least five fewer banks than two weeks ago, and the threat of a total systemic freakout (or at least another failed regional bank) remains top of mind for regulators and industry players.

Zoom out: The front-runner for the next failure: San Francisco-based First Republic. The regional bank has lost ~US$70 billion in deposits over the last few weeks, and shares were down ~90% on the year. But, they surged ~30% yesterday on the back of Yellen’s calming comments and recent news of the big-name banks stepping in to lend a helping hand.   

  • Last week, 11 major banks deposited US$30 billion at First Republic as a vote of confidence. Honestly, that didn’t do much to stem fears, but talks that part or all of that $30 billion will be converted into a cash infusion seem to have done the trick.

Bottom line: As the saying goes, a rising tide lifts all boats. Other hard-hit regional banks saw their shares spike, with the KBW Regional Bank Index up 4.81% on the day. Here’s hoping for smooth sailing ahead (but don’t hold your breath).