Just when you thought it was safe to go back into the banking waters.

As you’ll recall, the high-profile failures of two large regional banks captured national headlines back in March and spooked investors for a few days. But timely intervention from the Treasury Department calmed the panic, and the market eventually turned its attention elsewhere.

After all, these were isolated cases triggered by aberrant risk-taking behavior. Silicon Valley Bank (SVB) almost exclusively courted the business of tech startups and venture capital firms, knowing this particular set of leveraged clients would be vulnerable to rate hikes. The bank then deliberately parked the bulk of its deposits in long-term Treasuries, an asset class highly sensitive to rate hikes.

Did anyone on the board (only one member had actual banking industry experience) ponder the potential impact of rising interest rates?

It was a short-sighted business model predicated on rates staying low indefinitely. It worked – until it didn’t. When the Fed began tightening (which was inevitable at some point), SVB was flooded with customer withdrawals, forcing it to liquidate underwater bond holdings at the worst possible time. Billions were lost. And like a sandcastle succumbing to the tide, the bank crumbled.

Frankly, I’m surprised it didn’t fall sooner.

A few days later, Signature Bank was seized by regulators and forced to close. But it also had a quirky customer base composed mostly of cryptocurrency investors. And like SVB, more than 90% of its deposits were above the $250,000 FDIC threshold.

Why does that matter? Because the Federal Deposit Insurance Corp (FDIC) protects against bank insolvency and guarantees all accounts up to $250,000. So if customers smell trouble, the larger depositors are running to the nearest teller with a withdrawal slip.

With more $10 million accounts than $10,000 accounts, SVB and Signature were simply the most exposed to a bank run. It has been mostly quiet since then. But last week, a third victim was attacked under very similar circumstances. In hindsight, though, it’s not much of a shock.

Another Bank Failure…

On the same day Signature Bank closed, I mentioned that a third failure had been narrowly averted. First Republic Bank was saved by $30 billion in emergency funding at the zero hour. Unfortunately, that rescue package only delayed the inevitable.

First Republic limped along for a couple weeks. But on May 1st, the bank was shut down, and its assets were sold to the highest bidder – in this case, JP Morgan. Founded in 1895, First Republic’s plush branches attracted a number of affluent wealth management clients, including billionaires like Mark Zuckerberg.

Nearly three-fourths of its $90+ billion deposit base was uninsured, almost as much as SVB and Signature. In the days leading up to the collapse, confidence evaporated, and depositors exited in droves. With $229 billion in assets, First Republic becomes the second largest bank failure in U.S. history behind Washington Mutual.

Citigroup’s top boss has since referred to First Republic as “the last remaining uncertainty of the small handful of banks that did not do a good job with asset liability management.” Fed Chief Jerome Powell chimed in by saying that the biggest issues had been resolved and the banking system was now “sound and resilient.”

One thing I’ve noticed over the years: the more leaders insist that all is well, the more it seems to incite panic. For the record, I still see these failures as isolated events rather than a systemic contagion. But they aren’t quite as isolated as we first thought.

In fact, two more institutions are still somewhat threatened. PacWest (Nasdaq: PACW) and Western Alliance (NYSE: WAL) have frequently been mentioned in the same breath as First Republic since this crisis began. And tellingly, both have also suffered a precipitous decline in share price over the past two months. PacWest plunged 50% on May 2nd before trading was halted.

For context, First Republic bled away 41% of its assets during the first quarter. PacWest and Western Alliance shed 17% and 11%, respectively. But after that, the next biggest deposit exodus is Comerica (NYSE: SMA) at 9% and then Zion’s (Nasdaq: ZION) at just 5%.

Meanwhile, Apple (Nasdaq: AAPL) just upended the industry by raking in over $1 billion in deposits within the first four days of initiating a new savings account for Apple card holders. But that’s a story for another day.

Action To Take

The chart above (representing the regional banks) speaks volumes, but not for the reasons you might think…

While the banking clan still faces some challenges, this may be an opportune time to sift through the group and pick standouts — just like it was during the pandemic.

For example, the last round of jitters took one of my favorite regional banks down below $20 in April 2020. I made a bullish case for the well-run regional lender and added it over at High-Yield Investing. And while we normally aren’t looking for fast gains, we cashed out a 49.8% gain less than two months later (before we could even collect the first dividend).

Let’s be clear. This bank is not Silicon Valley or First Republic. In fact, this bank is healthier than ever – regardless of what the stock charts show. Yet, thanks to this panic – and 50 straight quarters of dividend hikes – the yield is back above the 4% mark.

The point is, we’ll see if any more shoes drop during this whole mess. But remember, if you want to make big gains, sometimes you gotta roll up your sleeves and look for companies that are being unfairly punished during a panic.

P.S. Are you looking for higher yields in this market? The average S&P 500 stock yields less than 2% — but you don’t have to settle for that. Over at High-Yield Investing, we’re finding yields of 7%, 8%, and more from safe, reliable picks my team and I find every month.

I encourage you to check out our latest research. Go here to learn more.