Orbisa Insights
The impact of more banking turbulence on securities lending
May 9, 2023
Renewed uncertainty in the banking sector has led to increased price volatility and lending demand in several regional banking securities. Orbisa data adds context to the dynamic situation as it unfolds.
Several weeks following the collapse of Silicon Valley Bank, another major domino fell as regulators made the move to seize control of First Republic Bank (FRC) and facilitate the sale of the firm to JPMorgan Chase (JPM).
The deal, announced on May 1, 2023, marked the second-largest U.S. bank failure since the financial crisis and sees JPMorgan purchasing the majority of First Republic’s assets. From a securities lending perspective, shares in First Republic experienced increased volatility in the cost to borrow in the week leading up to its sale. Orbisa’s 1-week fee volatility metric, which measures the average day-over-day fee change for the preceding week, was just 99 basis points (bps) on Monday, April 24. By Thursday, April 27, this metric exploded to 4,907 bps.
Demand and Fee Volatility continued to climb for shares of FRC leading up to the acquisition by JPMorgan Chase. The primary axis denotes percentage while the secondary axis denotes fee volatility in basis points.
The First Republic takeover further fanned the flames of investor uncertainty, with several regional banks facing challenges to stay afloat. PacWest Bancorp (PACW), whose stock has already been battered in 2023, at one point lost 50% of its value on Thursday. Other regional banks including First Horizon (FHN), Metropolitan (MCB) and Western Alliance (WAL), also faced significant selloffs in the first week of May and remained under a global microscope.
Looking at Orbisa data, lending activity increased across each of the previously mentioned securities. In particular, Western Alliance had the third-largest on-loan delta of all tracked securities as an additional 12 million shares were lent in the past week.
Shares on loan and utilization of WAL rose dramatically in the first week of May. The primary axis denotes quantity of shares while the secondary axis denotes percentage.
Orbisa continues to monitor movements in the securities lending market as participants react to shifts in the banking landscape.