PacWest & Western Alliance selloffs: What's behind the move

Shares of regional bank PacWest (PACW) tumbled Thursday after it announced it was considering strategic options including a sale. The regional bank said in a statement that it "will continue to evaluate all options to maximize shareholder value." Other regional banks followed PacWest lower. Western Alliance (WAL) closed down more than 38%, but off the lows of the day, after denying a report it was also exploring a sale. The declines in PacWest and Western Alliance drove down the KBW regional bank index (KRX) by 3.51% on the day.

Timothy Coffey, the Managing Director and Associate Director of Depository Research at Janney Montgomery Scott joined Yahoo Finance's Seana Smith and Akiko Fujita to breakdown the latest in the banking crisis, and commented on how investors can determine which banks could see similar outcomes in the future. "Banks are telling us what their deposit flows look like. You have to read them and analyze them" says Coffey, who suggests keeping an eye on the earnings and disclosures coming from regionals.

Coffey points to the locations of the banks as part of their downfalls. "I think it's interesting that you’re not seeing this in other parts of the country right?" He adds that Silicon Valley Bank and First Republic (FRC) both fell victim to this "very quick deposit run on four institutions all around the Silicon Valley area."

Watch the full interview with Timothy Coffey here

Key Video Moments

00:00:15 How to determine which bank could be next

00:00:45 What bank earnings can tell you about a banks outlook

00:01:25 Why Pacwest and Western Alliance are experiencing this fallout

Video transcript

AKIKO FUJITA: Investors are looking at every one of these regional banks, saying, who's going to be next? So how do they differentiate them?

TIMOTHY COFFEY: Well, the-- we need to consult the disclosures that the companies are putting out, and they're putting out a lot of disclosures, right? We've got call reports, earnings releases, 10 [? Ks, ?] 10 [? Qs, ?] right? Now, we're getting mid-quarter updates where basically, every two weeks, some banks are telling us what their deposit flows look like. And you have to analyze those. You actually have to read them, right?

So at Western Alliance, for instance, deposits are going up, right? The problematic depository customers in the technology sector that they experienced in March, they're bringing deposits back. They're about $400 million since March 20. You're seeing more borrowings and more on balance sheet liquidity within the entire banking sector. You're seeing more cash on balance sheet. You're seeing deposit costs starting to go up.

And so what we actually have across the industry is a banking industry that is more liquid and more attentive to customer demands when it comes to deposit costs. In a lot of ways, banks are safer right now than they were at the beginning of the year, but it's hard to really kind of acknowledge that reality when you've got declining share prices on the screen every day.

SEANA SMITH: Tim, why do you think PacWest and Western Alliance are being targeted so specifically?

TIMOTHY COFFEY: Because they're the last of the four from the Silicon Valley Bank closure, right? So they-- Silicon Valley Bank obviously had exposure to the VC and private equity industry. So did First Republic through their high-net-worth business model. But Western Alliance has a small subsidiary in Silicon Valley, and PacWest was also doing business in that same area-- the industry, rather.

And so when you saw the run of deposits at Silicon Valley Bank, close the bank. That's how severe it was. Same thing happened at First Republic, right? And they had to do the resolution with JPMorgan stepping in. And then you saw, also, deposit declines at Western Alliance and PacWest. I think it's interesting that you're not seeing this in other parts of the country, right? It was very abrupt, very quick deposit run on four institutions all around the Silicon Valley area. You're not seeing this in other parts of the country.