The First Republic Bank and the Federal Deposit Insurance Corp. “We Want To Get Kinder, Gentler Treatment Under Trump Regulators,” the Wall Street Journal reported

On Tuesday, there was a sharp selloff of First Republic’s stock, and on Wednesday, trading was so volatile the New York Stock Exchange halted trading of the bank’s shares an astonishing eight times.

In a statement, CFO Neal Holland called those deposit outflows “unprecedented.” Credit Suisse bank analyst Susan Rothkatske said they have seriously damaged the earnings power of First Republic.

The action by the largest banks in the country is indicative of their confidence in First Republic and other banks of all sizes, according to those firms. “Regional, midsize and small banks are critical to the health and functioning of our financial system.”

Regulators didn’t promise to backstop uninsured deposits after Silicon Valley Bank and Signature Bank collapsed, despite the fact that the federal government effectively insured all of their deposits.

The resilience of the banking system was demonstrated by the show of support by a group of large banks.

After Tuesday, First Republic said deposits had Stabilized, but investors remained concerned about the bank’s viability.

Separately, the Federal Deposit Insurance Corp. will also report Friday on how the regulator supervised New York-based Signature Bank, which failed days after the Silicon Valley lender.

The sudden implosion of two big regional banks rattled nerves throughout the financial system last month, forcing the federal government to take emergency steps to prevent a nationwide bank run.

The risks at Silicon Valley Bank weren’t fixed despite warnings from the Federal Reserve.

“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Barr, in announcing the Fed’s internal audit of what happened at Silicon Valley Bank.

Dennis is the head of Better Markets and he blames the deregulatory push for promoting a light touch on bank oversight.

A big headline on The Wall Street Journal in the middle of last year was: “Banks To GetKinder, Gentler Treatment Under Trump Regulators.” The whole story was about how the Fed people in Washington were going after the bankers.

The report is also expected to address whether mid-sized banks should be subject to more frequent “stress tests,” to ensure they can weather financial challenges.

A stress test is only required for the biggest banks with at least $250 billion in assets. That threshold was raised in 2019, sparing institutions the size of Silicon Valley Bank from the additional scrutiny.

Both banks had a large share of deposits that exceeded the usual FDIC insurance limit of $250,000 — putting them at high risk of rapid withdrawals if customers got spooked.

The banks’ failure resulted in an outflow of $119 billion from other small banks. Although deposits have since stabilized at most banks, lenders are expected to be more cautious about extending credit.

Why is the economy going to be weaker than it used to be? The Pantheon economist warns that a slowdown is inevitable

That caution, along with higher interest rates, creates an additional drag on economic growth, and it’s leading to a growing risk of a recession later this year.

“Every borrower across the country — small, medium and large — is going to find it much more difficult and much more expensive to get credit,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “The economy’s going to be materially weaker than it likely would have been without the SVB and Signature failures.”