Investors are piling into regional bank exchange-traded funds, one day after share prices plummeted, as fears of widespread fallout from the closure of two U.S. banks subsides.
Shares of the iShares U.S. Regional Banks ETF (IAT) jumped 4.6%, while the SPDR S&P Regional Banking ETF (KRE) gained 6.3% during midday trading. The two funds picked up a collective $39 billion in investor cash since Friday, etf.com data shows.
The increases partially reverse Monday’s declines, when both funds plummeted more than 17% on the first full day of trading after the closures of Silicon Valley Bank and Signature Bank rattled markets.
The government stepped in to calm investors, with the Treasury Department, Federal Reserve and FDIC jointly stating that depositors of both banks would be made whole. They also announced a $25 billion “Bank Term Funding Program,” which would offer one-year loans to banks in case of emergencies.
“Friday was obviously mass panic, and I think Monday was sort of residual panic from the weekends,” Alexander Yokum, equity research analyst at CFRA Research said to etf.com. “Today people are realizing that with the two banks that went down, even uninsured money isn't going to be lost, so people are not as frantic as they have been in the previous days.”
The closures of SVB and Signature are the second and third largest bank failures in U.S. history. Still, the government’s efforts didn’t prevent regional bank stocks, which make up the underlying index in funds like IAT and KRE, from tanking.
First Republic Bank and Western Alliance Bancorp both lost at least three-quarters of their value on Monday before trading was halted. They were among nearly a dozen regional banks whose trading was halted on Monday due to heightened volatility, according to the NYSE.
Regional bank ETFs and stocks, which are often favorites of investors seeking safety thanks to businesses that rely on mortgages and small business loans, rebounded today.
Billionaire hedge fund manager Bill Ackman, CEO of Pershing Square Capital Management, echoed those sentiments.
“Regional bank stocks are an incredible bargain now as long as the gov’t does the right thing, and I am confident it will,” Ackman said in a tweet Monday. “This means that one of the great trades would be to buy regional bank stocks or ETFs here. And the massive decline in rates makes this an even better investment now.”
Contact Shubham Saharan at [email protected]