CLEVELAND — The Federal Reserve’s policy committee lifted interest rates by another quarter of a percentage point on Wednesday afternoon, marking the 10th rate hike this cycle. The latest rate hike, which comes amid stubborn inflation, sent downward share prices of many regional banks, including PNC Bank, Huntington Bank and Cleveland-based Key Bank.
All three banks have been significantly impacted by ongoing market uncertainty following the collapse of three banks since mid-March, including the notable failure of Silicon Valley Bank.
The share prices of Key Bank (-45%), Huntington (-28%) and PNC (-26%) have all dropped precipitously since the start of the year, with the declines accelerating following the failure of Silicon Valley bank on March 10 and Signature Bank on March 12. As a whole, ongoing market turmoil resulted in regional banks being hammered on Wall Street on Tuesday.
“I think there are questions about what this could mean, what’s the next shoe to drop for regional banks,” said Michael Goldberg from Case Western Reserve University’s Weatherhead School of Management. “There have been some jitters with the interest rate expected to rise and what this could mean for regional banks, whether it’s Key Bank here in Cleveland or PNC based out of Pittsburgh but has a large presence here. I think our local market is looking at what’s happening. Regional banks are a key part of our local economy.”
The turmoil within the banking system that has followed the collapse of Silicon Valley Bank and, most recently, First Republic Bank is due in part to the cycle of interest rate hikes designed to clamp down on inflation. Many lenders, including regional banks, have taken on losses because older securities and loans that were issued before the rate hikes pay much less than newer loans issued with higher interest rates.
Banks like Silicon Valley Bank became insolvent after a large number of depositors withdrew their funds, leading to a “run” on the bank.
“The FDIC protection on deposits remains at $250,000, but what the Fed and the FDIC have shown, both with the SVB takeover and now First Republic, is that they are protecting depositors at even higher levels,” Goldberg said. “Those folks in Northeast Ohio that are taking a look and saying, ‘Are my deposits safe with a regional bank?’ I think the message that the Fed and FDIC are saying is even if you are over $250,000, you don’t have to run to which bank that you think has the highest chance of survival.”
In a statement provided to News 5, a KeyBank spokesperson said the institution’s balance sheets remain strong and diversified.
“KeyBank is well capitalized, with strong credit quality and deposit profiles. Key has a moderate risk profile with a wide range of funding sources and a very diversified, steady deposit base. Key is a nearly 200-year-old financial institution with safe, sound and strong fundamentals. While recent events in our industry have been disconcerting, it’s important to note that they are limited to a small number of niche banks with unique, highly concentrated financial profiles,” the spokesperson said. “KeyBank is in a much different, more diversified and stronger financial position. Despite the recent events in our industry, KeyBank is well positioned to continue supporting all our clients with a full range of financing options while maintaining our moderate risk profile and delivering value to our shareholders.”
Although people should be aware of the volatility within the market, Goldberg said people shouldn’t be fearful.
“There is no reason to fear necessarily,” Goldberg said. “You don’t need to take your money out of those banks and put it into [another institution]. Whether it’s Key Bank or other leaders of regional banks, this is the work that regional banks do: trying to make sure that they have that right mix of money they are taking in from depositors and paying the appropriate amount in interest rates to attract those deposits, and finding a good safe mix of ways to put that money out the door.”
