Shares of mid-sized U.S. lenders dropped in premarket trading on Wednesday, with PacWest Bancorp and Western Alliance Bank extending sharp losses from earlier this week as the failure of a third major regional lender in two months continued to haunt the sector.

The regulator's seizure of First Republic Bank and its assets sale to JPMorgan Chase & Co on Monday brought the banking sector turmoil back to the fore and sparked a selloff as investors fretted over the next shoe to drop.

The KBW Regional Banking Index closed at its lowest level since December 2020 on Tuesday.

"The tide of concern is rising about the ailing health of regional U.S. bank portfolios, with many sitting on large unrealised losses, at a time when deposit flight is all the rage," said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

"The ease of withdrawals in the digital age is causing increased nervousness, given the speed of banking collapses over the past two months."

PacWest shares declined 10.5% before the bell after closing at a record low on Tuesday. Western Alliance Bank shed 7.2%, while Comerica and Zions Bancorp fell 3.3% and 2.6%, respectively.

PNC Financial Services Group Inc dipped 1.8%. The lender on Tuesday said the parent company and its banking unit could offer up to $15 billion of its commercial paper to provide additional liquidity.

Later in the day, the U.S. Federal Reserve is expected to deliver a 25 basis-point interest rate hike and comment on the recent bank failures in a stiff rate regime. (Reporting by Medha Singh in Bengaluru; Editing by Dhanya Ann Thoppil)