Uncertainty is lingering in the banking industry as the recent crisis continues to rattle the market. Despite assurances from financial regulators and prominent bankers like Jamie Dimon, the CEO of JPMorgan, that the banking system remains strong and the worst of the crisis is over, bank shares have been selling off on Wall Street this week. This was after the government seized and subsequently sold First Republic Bank to JPMorgan, marking the second-largest bank failure in US history and the third failure of a midsize lender in just two months.

Although many believed that the sale of First Republic would put a stop to the "who's next?" conversations, analysts at UBS have noted that investors are still focusing on the remaining players that are deemed the weakest. The biggest worry is that the bank failures could lead to doubts about relatively healthy banks, creating a financial contagion that could have an impact on the wider economy.

The US had put tighter restrictions on major banks following the financial crisis that happened 15 years ago, to prevent this kind of scenario. Averting such a scenario is of utmost importance, and regulators and the banking industry must work together to restore trust and confidence in the financial system.

Renewed concerns have emerged about the health of smaller regional banks in the wake of the recent crisis that has already led to the failure of three midsize lenders. PacWest Bancorp and Western Alliance Bancorp have been particularly affected, with their shares experiencing significant pressure since the failure of Silicon Valley Bank in mid-March.

PacWest's shares took a significant hit on Thursday after the bank acknowledged that it was considering putting itself up for sale. Analysts from UBS believe that the bank is particularly vulnerable due to a high concentration of large, uninsured deposits from venture capital and tech clients, who were also the primary cause of bank runs at Silicon Valley and First Republic. In fact, around 23% of PacWest's deposits come from the venture capital and tech industry.

Despite assurances from banking regulators and executives such as Jamie Dimon that the worst of the crisis is over and the health of the banking system remains strong, investors remain unconvinced. This renewed sell-off of bank shares has reignited concerns that the failures of smaller banks could lead to doubts about the stability of healthier banks, causing a financial contagion that could impact the broader economy.

The U.S. banking industry is facing a turbulent period, with concerns about real estate loans and the effects of the pandemic causing anxiety among investors. Even regional banks like Comerica and KeyCorp have experienced significant drops in their stock prices this week, with fears growing about the viability of large amounts of office property loans.

Two smaller regional banks, PacWest and Western Alliance, have also been hit hard by the recent banking crisis. While both banks issued statements denying any significant deposit withdrawals following the sale of First Republic Bank, investors remain wary. PacWest is currently considering putting itself up for sale, and its high concentration of large, uninsured deposits from venture capital and tech clients is causing concern.

Western Alliance, based in Phoenix, has also been the subject of speculation about a potential sale, despite issuing a statement denying the rumors. The bank's shares have fallen 38%, highlighting the level of unease among investors.

The fate of First Republic Bank, which struggled to find a buyer after weeks of looking, has only added to concerns about the health of the banking system. With interest rates rising sharply over the past year, the value of large loans issued when rates were lower has been reduced, further compounding the crisis.

The recent crisis in the banking industry continues to spread as concerns grow over the sustainability of asset and deposit mixes at various banks. Even midwest regional banks like Comerica and KeyCorp are down more than 20% this week. Some analysts suggest that growing concerns about large amounts of real estate loans, particularly in the office property market, are contributing to this decline.

Meanwhile, two smaller regional banks, PacWest and Western Alliance, have come under fire from investors due to their concentration of uninsured deposits from venture capital and tech clients. PacWest recently fell 51% after acknowledging it was considering putting itself up for sale. Investors fear that the bank's fate could mirror that of First Republic, which spent weeks looking for a buyer before failing.

Adding to the uncertainty, TD Bank Group and First Horizon Corp. called off a planned merger on Thursday, citing regulatory hurdles. Toronto-Dominion Bank had announced in February that it was buying regional bank First Horizon in a $13.4 billion all-cash deal. These developments are causing unease in the banking industry and among investors, despite reassurances from financial regulators and bankers that the worst of the crisis is over.

The Federal Reserve's efforts to combat inflation have contributed to the ongoing turbulence in the banking sector, which has seen the failure of three major banks in the past six weeks. On Wednesday, the Fed raised its key interest rate to the highest level in 16 years, continuing its campaign to control inflation. This has led depositors to seek higher yields in certificates of deposit and money market funds, while also causing a slowdown in the tech industry that has impacted banks such as Silicon Valley.

Fed Chair Jerome Powell acknowledged the banking turmoil as a factor in future rate decisions, stating that the Fed would monitor the situation closely.

Powell also expressed his belief that the recent bank failures would cause other banks to tighten lending, which could aid in the Fed's inflation fight. However, some economists are concerned that the Fed's rapid rate hikes over the past year may slow the economy too much, potentially leading to a recession in late 2023 or early 2024.

Federal Reserve Chair Jerome Powell has acknowledged that there were lapses in supervision that led to the downfall of Silicon Valley Bank and has recommended stricter regulation of the banking industry. This comes after a report issued by the Fed last week that highlighted the need for increased regulatory oversight.

JPMorgan has predicted that bank stocks will continue to face pressure due to regulatory and economic uncertainty, among other factors. The bank's analysts have suggested that regulatory concerns may translate into banks needing to add more capital, liquidity, and debt, which could ultimately strengthen them in the long term but negatively impact their earnings per share in the short term.