• First Republic shares plunge 27%
• This after extent of deposit flight becomes clear
• 25% of workforce is set to be axed
• UK listed banks dragged down by negative sentiment

Image copyright First Republic, Pound Sterling Live.

Unease is spreading across the banking sector again, sparked by the sinking realisation of the scale of deposit flight suffered this year and the worry that the problem is not yet at an end.

Shares in First Republic Bank plunged at the open on Wall Street after the extent of the run on the bank became clear, with customers pulling more than $100 billion from their accounts in the first quarter.

Sentiment is downbeat across the sector, particularly as First Republic’s bleak situation has been painted so soon after Credit Suisse revealed just how large its black hole was yawning before its collapse and warned the trend of outflows had not yet reversed.

It seems the lifeline thrown to First Republic by large lenders hasn’t stopped confidence sinking.

With almost a quarter of the workforce being axed and a quick-fire asset sale getting underway, investors are sensing panic and fleeing the stock and worries are rising about another banking collapse.

The downbeat sentiment has prompted falls in shares in UK listed banks including Barclays, HSBC, Lloyds, and NatWest.

Even though banks have been benefiting from a rise in net interest margins, thanks to the cycle of rate hikes, there is expectation that they will be forced to attract more deposits by offering better rates, eating into profits.

Although systemic risk to the banking sector is still considered to be low, the chaotic nature of events which unfolded has clearly unsettled central bankers.

The Bank of England is already looking to improve the UK deposit scheme, to ensure depositors are paid back more efficiently and potentially increase the amount of money which is protected.

Market Report by Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown.