What Caused the Sharp Drop in PacWest Bancorp Shares and Other US Regional Bank Stocks?

On Thursday, shares of PacWest Bancorp experienced a large decline as a result of the lender's unsuccessful attempt to reassure investors at a challenging period for the stocks of US regional banks. This occurred in the middle of a difficult moment for stocks of US regional banks overall.

As a result of the unfavorable market conditions, not just one but two more medium-sized banks, First Horizon, and Western Alliance Bancorporation, incurred significant losses. The acquisition of First Horizon which was supposed to be completed by TD Bank did not go through, and Western Alliance refuted a rumor that it was considering selling its business.

The share price of PacWest fell by 50.6%, while the share prices of First Horizon and Western Alliance Bancorporation fell by 33.6% and 38.5%, respectively.

This drop is a direct result of the decision made by the Federal Reserve to boost interest rates, which is adding further pressure to an already difficult situation for the industry. The Federal Deposit Insurance Corporation's transfer of First Republic Bank to JPMorgan Chase earlier this week also contributed to the precipitous drop in prices. Other regional banks, such as KeyCorp, Comerica, and Zions Bancorporation, also had major drops in the price of their shares during this time period.

According to Alexander Yokum, an analyst at CFRA Research, this situation constitutes a "vicious feedback loop" in which "fear has completely taken over," which is further exacerbated by short sellers who place wagers on dropping stock prices. This propensity is made worse by a self-fulfilling prophecy, which occurs when a falling stock gives short sellers more confidence, which in turn prompts depositors to withdraw their money.

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