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Western Alliance's Deposit Growth Sparks U.S. Regional Bank Shares Rally

Investor confidence in U.S. regional banks soared on Wednesday, leading to a rally in their shares. This was spurred by the belief that the worst phase of the banking crisis has likely passed, a sentiment reinforced by the news of robust deposit growth at Western Alliance Bancorp (NYSE: WAL).

Western Alliance logo
Western Alliance logo

Western Alliance's Surge in Deposits

Over three months leading up to May 12, Western Alliance reported a deposit growth exceeding $2 billion. The bank's announcement on Tuesday indicated that despite recent failures of other regional lenders - Silicon Valley Bank, Signature Bank (OTC: SBNY), and First Republic Bank (OTC: FRCB) - customers maintain confidence in its financial health.

Expert Comments on Market Confidence

Arthur Hogan, the Chief Market Strategist at B. Riley Wealth in Boston, said, "The first sign is that there hasn't been another shoe to drop, which was a worry for investors." He further noted, "Then Western Alliance, one of the banks most affected, presented a filing showing an increase in deposits. As these banks show deposit stabilization, more confidence is gradually restored in the banking sector."

Stock Movement in U.S. Regional Banks

Western Alliance shares, which have fallen by 40% year-to-date, surged 13% to $35.90, offsetting the losses incurred over the past two weeks. Other regional lenders also witnessed an upswing in their stock prices. PacWest Bancorp saw a rise of 23%, Comerica (NYSE: CMA) Inc appreciated by 10%, Zions Bancorp rose by 11%, and KeyCorp (NYSE: KEY) gained 7.8%. The KBW Regional Banking Index jumped 7%, reaching its peak since May 1.

Outlook on Regional Bank's Recovery

Hogan also stated, "We're not going to return to pre-crisis levels soon as the earnings environment for regional banks will remain impaired, but the period of emergency appears to be fading, and there's more emphasis on the fundamentals."

Regional Banks Tighten Lending Standards

As the largest lenders to the struggling U.S. commercial real estate and construction markets, regional banks have curtailed their sector exposure by tightening standards and reducing loans, a Reuters analysis revealed. This strategic move comes amidst a challenging financial landscape for real estate borrowers, particularly with rising interest rates, reduced office usage, and property value depreciation due to recession fears.

Federal Reserve Data on Deposit Flows

According to the Federal Reserve data, deposit flows at U.S. banks, including regional lenders, rose to $17.16 trillion in the week ending on May 3. This represents the first increase in four weeks, showcasing a positive sign in the banking sector's recovery.