1.What led to SVB's disappointing recent earnings results?

2.How have Bank of America and JP Morgan responded to the impact of rising interest rates on their businesses?

3.What challenges did First Republic face in the most recent quarter and why?

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Rising interest rates were supposed to help Silicon Valley Bank. Instead, it got hurt.

The largest banks in the country posted higher lending profits in the third quarter and predicted more gains to come thanks to the Federal Reserves recent rate moves. Silicon Valley Bank, which caters to technology and life-science companies, especially startups, posted some of the slimmest gains and warned that its margins had already peaked.

The banks biggest issue was a slowdown in venture investing amid a broad retreat from risk. Its startup clients burned through cash that wasnt replenished by fresh fundraising, draining their deposits more than anticipated. Still, profit rose and loans grew.

On Oct. 21, shares in SVB Financial Group SIVB -3.93%decrease; red down pointing triangle, the banks parent, had their worst day since April 2009, at the bottom of the financial crisis. The stock is now down 50% in three months.

The stock markets failure to anticipate SVBs results highlights the enduring confusion about how banks and their clients will react to the Feds supersize rate moves. The Fed raised its core interest rate another 0.75 percentage point last week. The turbulence in SVBs stock may be a harbinger of what is to come for banks when those increases cause unexpected twists.

Analysts say deposit flows and their effect on profits are bank investors top concern. Industrywide, total deposits declined in the third quarter. They were down $106 billion in the past four weeks, according to Fed data.

That didnt matter much for big consumer banks such as JPMorgan JPM -0.40%decrease; red down pointing triangle Chase & Co. and Bank of America Corp. BAC -4.29%decrease; red down pointing triangle

Total deposits slipped at both banks in the third quarter, but they are so flush with deposits that they were able to keep their costs low while increasing what they charge on loans. That was true for many banks that cater to a broad swath of consumers less likely to chase higher rates.

JPMorgan expects to earn $19 billion in net interest income in the fourth quarter, far more than analysts had been forecasting and 40% more than the year before.

Plain-vanilla banking is somewhat in style, Barclays banking analyst Jason Goldberg said.

Banks that focus on a narrower slice of the banking population have watched their fortunes diverge.

First Republic Bank FRC -1.88%decrease; red down pointing triangle caters to wealthy customers who are quick to move their money when rates rise. To keep them, the bank paid them more interest on savings accounts and long-term certificates of deposit, which ate into its lending profits. Net interest margin, a key profitability metric for banks, fell in the quarter, and the bank said it would likely fall again. Its shares fell 16% on the day it reported earnings.

Without mincing words, [First Republic] is in the penalty box, KBW analyst Christopher McGratty wrote in a note.

The bank, which declined to comment, is hosting an investor day this week.

SVBs performance was particularly surprising. Analysts for years said it was among the banks most likely to benefit from higher rates.

Chief Executive Greg Becker said clients had raised a lot of venture funding in 2021, when private markets were booming. The average client was sitting on two to three years of cash, roughly double their normal hoards. This year, venture funds have all but stopped investing, while the startups are using their cash to run operations. SVB deposits fell 6% in the third quarter from the second.

Mr. Becker said it might take three or four more quarters for the startups to stop burning so much cash. And he isnt anticipating a quick rebound in venture investing until valuations come down for private companies.

Still, loan losses remain low despite the market turmoil. Clients borrowed more to fill the hole left by venture firms, though they burned through cash at a faster rate.

Mr. Becker said the bank is committed to its tech and healthcare focus. Venture capitalists are sitting on piles of cash, and when they do return to investing, typically half of their funds wind up parked at SVB. Those companies will go public someday, and the bank will be well-positioned to win more of their business, he said.

I have no doubt we are in the best market, Mr. Becker said.