After the collapse of SVB Financial and Signature Bank, investors panicked about First Republic - whose shares have been rocked over worries of possible contagion. But on Thursday, financial institutions including JPMorgan Chase and Morgan Stanley confirmed earlier reports that they would deposit up to $30 billion into First Republic's coffers to stabilize the lender.
That came after U.S. Treasury Secretary Janet Yellen told lawmakers in testimony that the banking system is sound.
"I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them"
The Dow gained more than 1%, the S&P 500 jumped nearly 1.8% and the Nasdaq soared two-and-half percent.
Shares of First Republic had plunged early in the session but ended up gaining nearly 10% on Thursday, while JPMorgan and Morgan Stanley each rose roughly 2%.
George Ball, Chairman of Sanders Morris Harris, says the fears over First Republic were unwarranted - but that it might now make a nice acquisition for JPMorgan and its CEO Jamie Dimon.
"First Republic is an interesting example of investors, I think, of anticipating a problem where none exists. But the very anticipation in the drawdown in their deposit base has put the bank at some degree of risk. It's interesting to me because First Republic, historically and correctly, has been known as a bank of the rich. And that I think is what spawned the purported interest of JPMorgan in acquiring First Republic, and the reason the stock has rebounded from a very low base today. Jamie Dimon understands banking for the rich."
The latest twist in the U.S. regional banks saga came on the heels of a 50 basis point rate hike by the European Central Bank.
Now the focus shifts to the Federal Reserve's next move, which has become more complicated in the wake of the recent banking chaos. Money markets are now largely pricing in a 25-basis-point rate hike by the Fed at its March 22 policy announcement... down from 50 basis points a week ago, though some Fed watchers think there could be no change at all.
"There's nothing the Fed can do that's right. They're gonna be criticized no matter what they do."
But Ball ultimately believes the Fed will go with 25 basis points.
"That's what people expected prior to this, and it may in a perverse way be an indication that the Fed is confident enough in the banking system that they can go ahead with their monetary policy as previously planned."
And as for other movers, shares of Facebook parent Meta Platforms and Snapchat operator Snap Inc both rose after the federal government threatened to impose a ban on rival TikTok.