With risks rising within the banking sector, investors should get defensive and lean toward large banks over regional institutions, according to Morgan Stanley. Silicon Valley Bank’s collapse , as well as the closure of crypto-focused Signature Bank and Silvergate Capital, all in March, “takes us further away from risks being idiosyncratic,” analyst Betsy Graseck wrote in a note Monday. “Indeed, we could argue that we are already in systemic risk territory as the Treasury, Fed and FDIC jointly invoked the ‘systemic risk exception’ last week,” she said. That exception, which was invoked after the failure of SVB and Signature Bank , among other things ensured that depositors with more than $250,000 in an account at either bank will get their money back. Graseck’s insight is widely followed on Wall Street and she’s been named a No. 1 stock picker in the sector by various publications in past years. Looking ahead, banks face a number of issues, including increased competition for deposits, a rise in the total cost of funding and stricter liquidity stress tests, Graseck said. Loan growth could slow even more sharply as well, she added. The end result is lower net interest margins, net interest income and return on equity across the industry, Graseck wrote. “The best positioned banks will be those with higher capital, excess liquidity, more resilient deposit base and/or better quality loan books,” she said. Among the large-cap banks, JPMorgan Chase , Wells Fargo and Regions Financial are buys, she said. In the consumer finance space, she likes American Express . The banking sector as a whole was dragged down in the wake of the crisis, with JPMorgan sliding 5.9% over the course of last week. Wells Fargo sank 8.7% and Regions Financial tumbled 11.8%, while American Express lost 5.5% over the same period. JPMorgan and Wells Fargo were in the group of 11 banks that came to the aid of First Republic last week, depositing a total of $30 billion for at least 120 days in the embattled San Francisco lender. Of that total, JPM and Wells Fargo contributed $5 billion each. — CNBC’s Michael Bloom contributed reporting.