By Tatiana Bautzer
NEW YORK (Reuters) - U.S. regional banks are expected to pay higher rates to depositors to keep them from switching to larger lenders, banking analysts said, following the collapse of Silicon Valley Bank and Signature Bank (NASDAQ:SBNY).
"Regional banks are likely to experience higher funding costs, as the industry gets more aggressive on deposit retention," Ebrahim Poonawala, an analyst at BofA Global Research, wrote in a note on Monday.
The potential for stricter regulation aimed at regional banks will also make it more expensive for them to operate, posing a drag on earnings, he said.
Silicon Valley Bank, based in Santa Clara, California, collapsed on Friday, followed by New York-based Signature Bank, in the second and third largest bank failures in U.S. history. The crisis rippled through global markets and hit banking stocks, including Credit Suisse this week.
"Funding cost pressures will be an industrywide phenomenon ... likely to be most pronounced at banks with a larger mix of rate-sensitive customers," Poonawala wrote.
BofA on Monday cut target prices for regional bank stocks including Ally Financial (NYSE:ALLY), Citizens Financial (NYSE:CFG) Group, Fifth Third Bancorp (NASDAQ:FITB) and First Republic Bank (NYSE:FRC), partly because of the expected increase in deposit pricing.
Rating agency Fitch put some regional banks on negative credit watch because of a "rapidly changing funding and liquidity environment," it said in a report on Monday.