- Regional banks stocks sank in the wake of the failures of Silicon Valley Bank and Signature Bank.
- Regulators are shielding depositors from losses, but bank shareholders won't be protected, President Biden said.
- Investors "knowingly took a risk and when the risk didn't pay off, investors lose their money," he said.
A nearly 80% plunge in First Republic shares highlighted Monday's brutal trading session for regional banks as President Joe Biden said investors in failed Silicon Valley Bank and Signature Bank cannot count on aid from the federal government.
Sharp price slides triggered trading halts in shares of multiple banks after regulators separately seized Silicon Valley Bank and Signature Bank, the first bank failures since the 2008 financial crisis.
The US Treasury, Federal Reserve, and FDIC ensured depositors at each bank will be fully protected from financial losses by exceeding FDIC limits of up to $250,000, making the move to stave off a widespread financial crisis.
While depositors at those banks will be shielded, investors will not see any aid from taxpayer money, Biden said Monday in televised remarks about the bank failures.
"Investors in the banks will not be protected. They knowingly took a risk and when the risk didn't pay off, investors lose their money. That's how capitalism works," he said.
Biden said the US banking system was "safe," but contagion fears contained to sweep through regional banks. First Republic shares fell by as much 78% to $17.53 and were subjected to at least three trading halts due to volatility.
Also subjected to trading halts, Western Alliance stock sank 54% during the session and PacWest shares tumbled 29%. Zions Bancorp fell 21% and Bank of Hawaii was pulled back 19%. Shares of Charles Schwab were down as much as 20% and were also halted in Monday's session before paring the loss to about 8%.
"We expect regional bank stock volatility to remain challenging in the short run as investors recalibrate the risk/reward and we remain cautious until there is visibility with regards to the end to the Fed rate hiking cycle (or possibly until the timing of rate cuts)," Bank of America said in a Monday note. "The state of the economy by the time the Fed is done also remains a swing factor that will inform investor opinion."
The KBW Nasdaq Regional Banking Index dropped 8.1% during the session.
The Federal Deposit Insurance Corporation shut down SVB on Friday after clients attempted on Thursday to withdraw $42 billion from the tech-focused lender after learning it faced a $1.8 billion loss on the sale of bonds that had plunged in value as interest rates jumped.
Regulators shuttered Signature Bank, which was dealing with its own crypto-related turmoil, in an effort to stave off a systemwide financial crisis.