The US regional banking crisis started with private equity. Could it similarly end with the so-called masters of the universe?
Silicon Valley Bank had tried to sell stock to raise capital in conjunction with an equity raise from the firm General Atlantic. The announcement spooked the stock market and depositors and the deal never happened. Since then, US regulators have seized SVB along with Signature Bank and First Republic Bank and sold them off cheaply.
Other small regional lenders including PacWest Bancorp have too been trounced this week on worries about their durability. But their troubles might be less about deposit flight. On Thursday, PacWest said its deposit base had stabilised in recent weeks and that its insured deposit proportion had jumped to 75 per cent. Like First Republic, however, PacWest’s profitability has diminished as it had to rely on expensive funding sources.