First Republic retreats 25% on Monday to lead back to regional banks

Regional bank shares rose sharply in premarket trade on Monday as investors were encouraged by reports that the recent strain on the sector may be easing and that further government support may be on the way.

Shares in First Republic rose 25% in premarket trading, breaking away from the struggling firm’s heavy losses in March. Shares of PacWest Bancorp rose about 11%, while Western Alliance rose more than 6%.

The SPDR S&P Regional Bank ETF (KRE) rose more than 3%.

Monday’s moves follow several signs that the crisis for regional banks may be easing in the US.

Bloomberg News reported Saturday that U.S. officials are considering expanding federal programs that provide more liquidity to banks, in part to help First Republic as it searches for a buyer.

CNBC also reported on Saturday that the deposit flow to large banks from the smaller regional regions has slowed significantly.

Regional bank stocks have been under significant pressure this month, with regulators shutting down SVB on March 10 and Signature Bank two days later after significant deposit outflows. Federal regulators announced that depositors in those two banks would be made whole while providing additional liquidity to other banks.

First Republic, which had a similar business model to SVB, has been a particular problem. Eleven major banks put $30 billion into First Republic as a show of confidence in the smaller firm.

Monday’s gains also follow the announcement that First Citizens BancShares agreed to buy a large portion of SVB, including deposits and branches. Shares in First Citizens rose 40% in pre-market trading.

Parts of the smaller Signature Bank have already been purchased by New York Community Bancorp. And in Europe, Swiss officials brokered a sale of Credit Suisse to UBS, although Credit Suisse’s problems appear to be largely unrelated to the US regionals.