Bank shares have sold off on Wall Street this week following the government seizure and subsequent sale of First Republic Bank to JPMorgan. It was the second-largest bank failure in U.S. history and the third failure of a midsize lender in two months.

While many thought the sale of First Republic would stop the whos next? conversations, investors are clearly continuing to focus on remaining players that are deemed the weakest analysts at UBS wrote in a note to clients.

The bigger worry is that the bank failures might lead to doubts about relatively healthy banks, creating a financial contagion that could impact the wider economy. Averting that scenario was the reason the U.S. put tighter restrictions on major banks following the financial crisis 15 years ago.

It is difficult to ignore the sense of unease in banking right now, though theres no need for concern if your money is in a bank insured by the Federal Deposit Insurance Corp. and you have less than $250,000 there, which covers most accounts.

Yet markets do not appear to have been reassured by prominent names in finance who say instability in the banking sector ended with the takeover Monday of First Republic Bank, the third bank failure in short order. JPMorgans Dimon said Monday that he believed this part of the banking crisis was over. Federal Reserve Chair Jerome Powell vouched for the health of the financial system on Wednesday.

Regardless of those assurances, a renewed sell-off Thursday focused on PacWest Bancorp and Western Alliance Bancorp, two smaller regional banks whose shares have been under pressure since Silicon Valley Bank failed in mid-March and set off the current crisis. PacWest fell 38% after acknowledging it was considering putting itself up for sale.

But there was a significant sell-off in numerous regional banks, including Zions Bancorporation, Comerica, Truist, KeyCorp and Huntington.

The KBW index of regional banks has fallen 13% so far this week. PacWest was targeted because of a high concentration of large, uninsured deposits from venture capital and tech clients, the same type of customers who triggered bank runs at Silicon Valley and First Republic. But even Midwest regionals such as Comerica and KeyCorp are down more than 20% this week. That could reflect concerns about large amounts of real estate loans, particularly in the office property market, which continues to suffer the effects of the pandemic.

PacWest, based in Los Angeles, and Western Alliance, in Phoenix, each issued a statement overnight saying they werent experiencing any out-of-the-ordinary deposit withdrawals following the sale of First Republic, a classic bank run that was accelerated by social media and modern technology. Both saw significant withdrawals following the failure of Silicon Valley Bank, but the banks say deposits have increased since March 31.

Western Alliance issued a separate statement Thursday morning denying a story in The Financial Times that said the bank is considering a sale. Its shares were down 26% in afternoon trading, but had tumbled 40% earlier.

Investors may fear that PacWests fate could mirror that First Republic, which spent weeks looking for a buyer before failing. First Republic had already received a government-orchestrated rescue package of $30 billion from 11 banks in hopes of shoring up its balance sheet, but that wasnt enough. Its unclear what action if any federal regulators would take to support PacWest.

The underlying issue, particularly at these banks, is their asset and deposit mix isnt sustainable. Deposits keep running out the door or banks are having to pay hefty prices for them, said Chris Caulfield, a banking industry consultant with West Monroe who has worked with many of the regional banks in trouble.

Healthier banks have been reluctant to step in to buy struggling lenders. All assets of Silicon Valley, Signature and First Republic were bought after regulators seized them and the remnants were transferred to the Federal Deposit Insurance Corporation.

In another sign of potential trouble, a major deal in the banking sector was called off Thursday. TD Bank Group and First Horizon Corp. said they called off a planned merger, citing regulatory hurdles. Toronto-Dominion Bank had said in February that it was buying regional bank First Horizon in a $13.4 billion all-cash deal.

The Federal Reserves fight against inflation has played a key role in the banking turmoil. The Fed on Wednesday raised its key interest rate by a quarter-point to the highest level in 16 years as part of that campaign, its tenth consecutive rate hike.

The higher rates have prompted depositors to move money into higher-paying certificates of deposit and money market funds. They also played a role in the slowdown in the tech industry, which had major implications for West Coast banks such as Silicon Valley.

Chair Jerome Powell said the Fed would monitor several factors, including the turmoil in the banking sector, in deciding its next move on rates.

The Fed chair stressed his belief that the collapse of three large banks in the past six weeks will likely cause other banks to tighten lending, and that would help the Fed in its inflation fight. The Feds rapid rate hikes over the past year have started to slow the economy, and a number of economists expect a recession late in 2023 or in early 2024.

Powell also said he agreed with the conclusions of a Fed report issued last week that said lapses in supervision contributed to the demise of Silicon Valley Bank, and recommended stricter regulation of the banking industry.

JPMorgan anticipates bank stocks will continue to be pressured due to regulatory and economic uncertainty, among other factors.

Regulatory concerns primarily would translate into how much banks need to add to capital, liquidity, and debt, all of which would strengthen them longer term but hurt (earning per share), analysts said in a note.

Just 11.5% of Americans regularly lit up cigarettes last year, better than the 12% goal set by the US governments Healthy People 2020 plan and the lowest level since 1965, according to a report from the Centers for Disease Control and Prevention. Still, about one in five adults reported using a tobacco product in 2021, nearly unchanged from the previous year, with e-cigarette use rising to 4.5%.

Companies including Marlboro maker Philip Morris International Inc. have contributed to the shift in tobacco consumption, expanding into smoke-free nicotine alternatives as cigarette use declines. The number of e-cigarette products, which include Imperial Brands Plcs Blu vapes and Juul from formerly Altria Group Inc.-backed Juul Labs Inc., more than quadrupled in a year from June 2021 to 2022, according to a Truth Initiative analysis. 

The products have become popular among kids and young adults, in part because of a perception that e-cigarettes are less harmful than cigarettes. The use of creative flavors has also led to charges that the manufacturers deliberately court the youth market.   

E-cigarettes are also used by those who are looking for a traditional cigarette substitute or are trying to quit, though no e-cigarette has been shown to safely help people quit. About a third of people who reported using multiple tobacco products smoked both cigarettes and e-cigarettes, the study said.

While cigarettes popularity has steadily declined since the 1960s, their use remains high in certain populations, including those with low incomes and living in rural areas, according to the study. Those disparities should be addressed through strategies like increasing product prices, running educational campaigns and regulating products, researchers said.

A.I. as a widely-available commercial product only really entered the public consciousness in November last year, when OpenAI released its hugely popular A.I.-powered ChatGPT. But Khan and the FTC are already seeing issues related to the nascent technology that threaten to undermine fair competition and harm consumers, she wrote in a guest essay published in the New York Times Wednesday.

While the technology is moving swiftly, we already can see several risks, Khan wrote, adding that widespread use of A.I. could entrench the status of tech behemoths that already play an outsized role in the economy. 

A handful of powerful businesses control the necessary raw materials that start-ups and other companies rely on to develop and deploy A.I. tools. This includes cloud services and computing power, as well as vast stores of data. 

Left, unchecked, leading A.I. companies could dominate the industry much like todays Google, Meta, and Apple, cornered the Internet 20 years ago, Khan warned. But if antitrust regulators begin applying pressure now, she argued, we could instead move towards a rosier scenario like what happened when corporate giants like IBM and AT&T gave up control decades agoand sparked an economic boom.

Mounting antitrust threats

A.I.s integration is happening fast, as companies including Google and Microsoft are locked in an arms race to corner the market in a global industry that could be worth nearly $16 trillion by 2030, according to PwC, a consulting firm.

The pace of change has a historical precedent, Khan wrote: The onset of the Internet in the 1990s and early 2000s, and especially the emergence of social media and user-generated content online. That technological disruption was an opportunity that todays tech giantsincluding Google, Meta, and Appleseized, and Khan, a longtime advocate of sweeping antitrust reforms, has frequently targeted tech companies for perceived breaches of fair competition rules since becoming FTC chair in 2021. Khan wrote in her guest essay that the online services companies initially promised as free were eventually monetized through extensive surveillance, a tradeoff that remains alive to this day.

While the antitrust rules of decades ago mainly concerned itself with price fixing, when giants controlled prices while limiting competitors say, Khan has been called a proponent of hipster antitrust, a school of antitrust that doesnt just consider price controls as a measure of anti-competitiveness, but also thinks about the structure of markets. So-called market structuralism keeps a small number of large companies at the top through several mechanisms including political influence and swallowing up small potential competitors early on. 

Khan notably wielded this interpretation of antitrust in a campaign against Meta that began last year, where she sued to block the acquisition of a tech start-up that Meta saw as a puzzle piece in its larger metaverse vision. 

A similar situation could be playing out with A.I., Khan warned. The space has so far been dominated by a small number of actors, primarily Google and Microsoft, the companies backing the most prolific A.I. labs in the world, respectively DeepMind and OpenAI. She wrote that because A.I. will likely play a major role in price-setting, collusion between giants unfairly inflates costs, and could also lead to targeted price discrimination. But she argues that the limited competitive pool also risks hurting the industrys development.

A lack of government oversight and regulation could lead to A.I. being trained on huge troves of data in ways that are largely unchecked, she continued, potentially enabling misinformation and facilitating the work of scammers in ways that threaten turbocharging fraud. 

The history of the growth of technology companies two decades ago serves as a cautionary tale for how we should think about the expansion of generative A.I., Khan wrote, comparing the lack of A.I. oversight to the situation that enabled todays tech giants to dominate the Internet. As the use of A.I. becomes more widespread, public officials have a responsibility to ensure this hard-learned history doesnt repeat itself.

But if techs consolidation over the past 20 years is a warning about what to avoid, Khan looked even further back to find a blueprint for how to evade predictable pitfalls. Beginning in the 1960s, tough antitrust action coerced large tech companies to disclose the closely-guarded inner workings of their success, in a lesson that Khan points to about how to handle technological disruption for the benefit of all. 

Cracking down on tech

Khans brand of hipster antitrust has plenty of critics, but she wrote in her essay that traditional antitrust action taken decades ago could be a roadmap for how the government approaches A.I.  

Khan pointed to the case of computing titan IBM, which in 1969 was slapped with an antitrust lawsuit that would eventually lead to a legal battle lasting 13 years. At the time, IBM boasted 70% of the computer market share, and the government sought to split the giant into several smaller companies that could compete with one another. Under mounting government pressure, and as legal fees climbed in a case that involved nearly 1,000 witnesses, IBM unbundled its software from its hardware products, an act some commenters look back on as crucial to shaping the modern software industry, and that Khan said created trillions of dollars of growth.

Another example cited by Khan was a 1974 antitrust case against telecommunications giant AT&T, which at the time was the worlds largest privately-owned company. A legal settlement in 1982 forced AT&T to divest its 23 local subsidiaries that enabled the companys monopoly over U.S. telecommunications.

The AT&T breakup led to a 19% increase in telecommunications patenting between 1981 and 1990, while the number of new patents between 1970 and 1981 largely stayed the same or even decreased, according to a study published last year by CEPR, a European economic think tank. The antitrust crackdown unleashed decades of innovation and spurred the expansion of countless young firms, Khan wrote.

Lawmakers have largely taken a slow approach to setting the rules around A.I., with some experts saying that the tech is advancing much faster than most policymakers can keep up with. 

Secrets behind companies rapid advancements in A.I. have also so far remained protected. Even OpenAI, the startup that was originally founded with the mission of democratizing A.I. for all to benefit, has been largely private about the finer details of its latest systems, notably eliciting the scorn of co-founder Elon Musk, who has since gone on to announce his own rival A.I. startup called TruthAI.

But the urgency of staying in control of the A.I. industry has not been lost on some government officials. On Thursday, the White House unveiled new measures to ensure A.I. research in the U.S. incorporates ethics and that companies were following best practices to ensure the public equally benefits from the technology. Also on Thursday, President Biden reportedly organized a meeting with CEOs of leading A.I. companies to discuss implementing the measures.

The U.K. announced similar action on Thursday, when the governments Competition & Markets Authority announced a sweeping review of the countrys A.I. industry examining whether markets will remain competitive and if the rapidly scaling technology threatens to undermine consumer protection laws.