What happened

It seems the U.S. banking system won't collapse after all...at least for now. An unexpectedly bullish update from a regional lender many thought was at risk of collapsing bolstered bank stocks on Wednesday.

Quite a few saw notable, market-beating gains, including Bank of America (BAC 0.73%), which closed the day 4.4% higher, and JPMorgan Chase (JPM -0.09%) with a 3% gain. They were joined by U.S. Bancorp (USB 0.62%) and next-generation lender Upstart Holdings (UPST -0.34%) advancing a respective 6.2% and 10.4%.

So what

Banks got off to a rocking start on Wednesday thanks to the latest news from the supposedly vulnerable Western Alliance (WAL 1.54%). The company said that its deposit base has grown by $1.8 billion on a quarter-to-date basis, and by $600 million since May 2, to reach over $49 billion. Of that latter total, around 79% of deposits are insured by the government's Federal Deposit Insurance Corporation (FDIC).

Investors had been trading out of Western Alliance aggressively in the wake of other bank collapses, notably SVB Financial and Signature Bank.

They feared significant deposit erosion as worried clients pulled out their money in favor of lenders seen to be on more solid financial ground. That clearly isn't happening, at least not in Western Alliance's case.

Now what

So investors were breathing a sigh of relief and coming back into banking stocks of all shapes and sizes.

Bank of America and JPMorgan Chase are two of the "big four" national lenders, so large-scale deposit erosion hasn't been a big worry with them. The story is much the same with U.S. Bancorp, which, although a regional lender, is sufficiently large and sprawling enough to attract deposits instead of scaring customers away. Upstart Holdings has a rather different business model, so migration was less of a concern.

Nevertheless, what's good on the regional level in banking benefits all healthy operators throughout the sector. It wasn't surprising to see a wide and deep rally in bank stocks on Western Alliance's good news.