Trading in both firms triggered multiple volatility halts after PacWest fell as much as 42% while Western Alliance plunged 27%. The KBW Regional Banking Index dropped as much as 7%, the most since the crisis that engulfed Silicon Valley Bank in March. 

Charles Schwab Corp., a brokerage with a banking arm that's come under pressure in the recent rout, sank 5.3%. Comerica Inc. and Zions Bancorp. each fell more than 10%.

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Part of what's driving bank shares down is the fact that many regional bank investors assumed the Federal Deposit Insurance Corp. would announce a change to deposit insurance alongside its announcements about the First Republic receivership process, said Gary Tenner, an analyst at DA Davidson. The level of uninsured deposits at Silicon Valley Bank and Signature played a key role in the bank runs that led to their downfall.

First Republic, whose assets were battered by the rise in interest rates, had struggled to stay alive after two other lenders collapsed last month, spooking depositors and investors.

First Republic was taken over by the Federal Deposit Insurance Corporation and immediately sold to JPMorgan. The deal was announced hours before U.S. markets are set to open, and after a scramble by officials over the weekend.

Later on Monday, 84 First Republic branches in eight states will reopen as JPMorgan branches.

JPMorgan will "assume all of the deposits and substantially all of the assets of First Republic Bank," the F.D.I.C. said in a statement. The regulator estimated that its insurance fund would have to pay out about $13 billion to cover First Republic's losses. JPMorgan also said that the F.D.I.C. would provide it with $50 billion in financing.

The morning SVB was seized, regulators believed they may have solved the bank's shortfall, only to run into a $100 billion wall of withdrawals.

"They were not able to actually meet their obligations to pay their depositors over the course of that day and they were shut down," Barr said.

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After a year of rapidly rising rates, there's greater incentive to avoid being stagnant with cash. While many money-market funds are paying more than 4% interest, Schwab's sweep accounts offer just 0.45%.

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"As a result of rapidly increasing short-term interest rates in 2022, the company saw an increase in the pace at which clients moved certain cash balances" into higher-yielding alternatives, Schwab said in its annual report. "As these outflows have continued, they have outpaced excess cash on hand and cash generated by maturities and pay-downs on our investment portfolios."

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To plug the gap, the brokerage's banking units borrowed $12.4 billion from the FHLB system through the end of 2022, and had the capacity to borrow $68.6 billion, according to an annual report filed with regulators. Schwab borrowed an additional $13 billion from the FHLB so far this year, the filing showed.

When other interest-sensitive assets are included, one estimate puts the loss for U.S. banks alone at $2 trillion. Globally, the total unrealized loss might be two to three times that. The fact is that higher rates and losses on securities have significantly weakened the global banking system. 

This is before loan losses. Higher rates will affect interest sensitive sectors such as real estate, non-essential consumer industries, and highly leveraged companies. Default rates are projected to rise globally, further reducing earnings and capital buffers.

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Second, since the global financial crisis in 2008, regulatory restrictions on traditional banks have shifted higher risk or more complex lending or trading into the shadow banking system -- non-bank financial institutions including insurance companies, pension funds, mutual funds, hedge funds, family offices and specialty financiers. The Bank of International Settlements estimates that $227 trillion was held in these accounts in 2021, almost half the size of the global financial sector and an increase from 42% in 2008.

The trouble is that information about and regulation of these entities is limited. The September 2022 crisis in U.K. government bonds, triggered by liability-driven investing strategies of the British-defined benefit pension plan, highlights the potential risk here.

But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review -- getting a more careful look -- and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions.

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It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality.

By early 2023, Silicon Valley Bank was in what the Fed calls a "horizontal review," an assessment meant to gauge the strength of risk management. That checkup identified additional deficiencies -- but at that point, the bank's days were numbered. In early March, it faced a run and failed within a matter of days.

Major questions have been raised about why regulators failed to spot problems and take action early enough to prevent Silicon Valley Bank's March 10 downfall.

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The picture that is emerging is one of a bank whose leaders failed to plan for a realistic future and neglected looming financial and operational problems, even as they were raised by Fed supervisors. For instance, according to a person familiar with the matter, executives at the firm were told of cybersecurity problems both by internal employees and by the Fed -- but ignored the concerns.

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The bank, which is also weighing options for shoring up liquidity, is expected to draw interest from larger rivals, said some of the people, all of whom requested anonymity discussing confidential information. No decision has been reached and the bank could still choose to remain independent, they said. A spokesperson for First Republic Bank declined to comment.

First Republic said Sunday that it had more than $70 billion in unused liquidity to fund operations from agreements that included the Federal Reserve and JPMorgan Chase & Co. Still, its stock fell 21% Wednesday in New York trading to a decade-low of $31.16, giving it a market value of $5.8 billion.

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The lender specializes in private banking and wealth management, and has made an effort to differentiate itself from Silicon Valley Bank, which has been seized by US regulators. Unlike SVB, which counted startups and venture firms among its biggest clients, First Republic said that no sector represents more than 9% of total business deposits.

Credit Suisse's failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media. Its association with disgraced financier Lex Greensill and failed New York-based investment firm Archegos Capital Management compounded the sense of an institution that didn't have a firm grip on its affairs. Many fed up clients have voted with their feet, leading to unprecedented client outflows in late 2022.

"Big picture, this was the right thing to do," said Christina Parajon Skinner, an expert on central banking and financial regulation at the University of Pennsylvania. But she added that it could still encourage financial betting by reinforcing the idea that the government would step in to clean up the mess if the financial system faced trouble.

"There are questions about moral hazard," she said.

One of the signals the rescue sent was to depositors: If you hold a large bank account, the moves suggested that the government would step in to protect you in a crisis. That might be desirable -- several experts on Monday said it might be smart to revise deposit insurance to cover accounts bigger than $250,000.

But it could give big depositors less incentive to pull their money out if their banks take big risks, which could in turn give the financial institutions a green light to be less careful.

That could merit new safeguards to guard against future danger, said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He thinks that bank runs in 2008 and recent days have illustrated that a system of partial deposit insurance doesn't really work, he said.

"Market discipline doesn't really happen until it's too late, and then it's too sharp," he said. "But if you don't have that, what is limiting the risk-taking of banks?"

. The bank said the move raises its unused liquidity to $70 billion, before any funding it could get from the new Fed facility.

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While First Republic is not as concentrated in one industry as SVB was with technology, the bank does tend to cater to businesses and wealthy individuals who tend to have large uninsured deposits.

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While SVB had an unusually high percentage of uninsured deposits, there are other mid-sized banks that could be at risk of large withdrawals.

"We believe regionals with less diversified and large uninsured deposit bases are at risk of deposit flight but not at the speed of SVB and they should have time to tap wholesale funding markets (such as FHLB) and raise cash levels. In a fragile environment like we are in, we believe banks should be cautious about the potential negative signaling effect of raising deposit rates to keep deposits," Citi analyst Keith Horowitz said in a note to clients.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.''

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

And if that push to find a buyer were to fail, the government was considering safeguarding uninsured deposits at the bank, another person said. But no decision had yet been made.

As the Treasury, Federal Reserve, F.D.I.C. and White House pushed for a solution, economists and politicians worried that companies that have big and uninsured bank deposits might grow nervous as they watched some Silicon Valley Bank customers face down losses -- prompting them to pull their own deposits out of other regional banks.

"The risk is to regional banks, having their assets flee," said Representative Ro Khanna, a California Democrat.

Silvergate has served as one of the two main banks for crypto companies, along with New York-based Signature Bank

. Silvergate has just over $11 billion in assets, compared with over $114 billion at Signature. Bankrupt crypto exchange FTX was a major Silvergate customer.

"In light of recent industry and regulatory developments, Silvergate believes that an orderly wind down of Bank operations and a voluntary liquidation of the Bank is the best path forward," the company said in a statement.

All deposits will be fully repaid, according to a liquidation plan shared on Wednesday. The company didn't say how it plans to resolve claims against its business.