Regional U.S. lender First Citizens BancShares scooped up the assets of failed peer Silicon Valley Bank on Monday, in a vote of confidence for the battered banking sector that prompted a rally in bank shares.
SVB's collapse this month was the trigger for the worst banking shock since the 2008 global financial crisis, sending bank stocks globally on a wild ride and raising fears of systemic stress that could lead to more bank failures.
But news of the SVB deal - after previous attempts to sell the bank failed - and a weekend free of fresh troubles helped boost confidence, especially among fragile U.S. regional banks, whose stocks rose sharply on Wall Street on Monday.
Broader indicators of financial market stress were also calmer, with government bond yields rising and the euro higher against the dollar.
"The banking sector had been holding its breath over the weekend, wondering whether Monday morning would deliver another bank in need of a rescue," said Danni Hewson, head of financial analysis at AJ Bell.
"Instead, nerves have been bathed in the soothing balm of certainty as one of America’s largest family banks gobbled up a chunk of Silicon Valley Bank, wiping the name from America’s streets and hopefully from the front of investors’ minds."
First Citizens BancShares Inc, which has built a reputation of buying troubled rivals, bought all of SVB's loans and deposits, giving the Federal Deposit Insurance Corp (FDIC) equity rights in its stock worth as much as $500 million in return.
First Citizens said it would take on assets of $110 billion, deposits of $56 billion and loans of $72 billion, and expand in California. The FDIC retains some $90 billion in securities held for disposal.
"We see the sale of SVB to a regional bank as politically helpful to the banks. It allows the industry to argue that large regionals can be resolved without help from the mega banks," said analysts at TD Cowen.
Shares of First Citizens, which also has an agreement to share some potential losses with the regulator, soared 53.7% on Monday.
Top U.S. banking regulators plan to tell Congress that they will comprehensively review their policies in a bid to prevent future collapses and signaled that new bank rules are in the works - such as tightening up requirements for larger regional banks and how to police heavy reliance on uninsured deposits.
Fed Vice Chair for Supervision Michael Barr and Federal Deposit Insurance Corporation Chairman Martin Gruenberg - who are due to speak at a Senate hearing on Tuesday - will also echo other policymakers in emphasizing that the overall financial system remains on solid footing.
The White House also reiterated its reassurances on banks, saying the U.S. banking system is safe.
The collapse of SVB and New York-based peer Signature Bank has left politicians wary of public perceptions that banks are being bailed out again, after anger over the sector's costly rescue in 2008.
The FDIC estimates SVB's failure will cost a federal deposit insurance fund used to rescue banks about $20 billion. The fund does not take U.S. taxpayer money and is instead replenished by a levy on the entire banking sector.
Signature's failure cost the FDIC $2.5 billion but had no other direct cost to taxpayers outside of the FDIC, Wells Fargo analysts wrote.
"The bottom line is that the 2nd and 3rd largest bank failures are now resolved," Wells Fargo analysts said.
The First Citizens deal boosted shares of other smaller regional banks, including First Republic, which has been at the forefront of investors' minds. Its shares jumped almost 12%.
Regional peers Western Alliance Bancorp and PacWest Bancorp each climbed more than 3%. Major U.S. banks JPMorgan Chase & Co, Citigroup and Bank of America advanced between 2.9% and 5%.
Banking stocks in Europe also rebounded after a shaky previous session. Germany's biggest lender Deutsche Bank , which had slumped 8.5% on Friday alongside a sharp jump in the cost of insuring its bonds against default, rose 6.2%.
The Stoxx index of top European bank shares is still down more than 17% this month, however, and the U.S. KBW regional bank index has lost 20%, as investors remain on edge about what is next.
The banking tumult has prompted investors to question whether major central banks will continue to pursue aggressive interest rate hikes to tamp down inflation, and whether tightened lending will hurt the global economy.
But Bank of England Governor Andrew Bailey signalled that interest rate-setters would continue to focus on fighting inflation and would not be swayed unduly by worries about the health of the global banking system.
Even before the present crisis erupted, bank lending to euro zone companies had slowed for the fourth straight month in February, signalling increased caution from lenders.
In the United States, flows into less risky money market funds have risen by more than $300 billion in the past month to a record atop $5.1 trillion.
(Reporting by Susan Mathew and Amruta Khandekar in Bengaluru and Pete Schroeder in Washington Additional reporting by Maria Ponnezhath in Bengaluru, Anirban Sen in New Orleans, Joice Alves in London and Renju Hose in Sydney and Noel Randewich in Oakland, California Writing by Tom Westbrook, Toby Chopra and Deepa Babington Editing by Nick Zieminski and Matthew Lewis)