First Republic: why the banking crisis is rekindling

First Republic: why the banking crisis is rekindling

THE banking crisis To UNITED STATES came back with her case Bank of the First Republic (FRB)who is faithful copy of his case Silicon Valley Bank (SVB).

He must have lost his stock price FRB -98% In 12 months and be found $171.09 To $3.51the “short” to win over a billion dollars by betting on the collapse of the bank to appear the federal bank deposit guarantee authority FDIC (Federal Deposit Insurance Corp.) and start looking for the white knight again, who to safeguard the concept of banking trustbuying out what remains of the First Republic Bank.

52-week chart of First Republic Bank shares

THE causes her collapse of the fourth in line of American regional banks, placed under the special management status of the FDIC, are known to all and are now described in detail in Fed reports.

THE First of all basic cause East relaxation of regulations And settings governing the American banking system, put in place under the presidency of Donald Trump.

THE second cause she was adoption A unsustainable development model, which was based on providing extremely low interest rate loans to FRB depositors. Thus, it provided loans for the purchase of a house at interest rates of 3% when the Fed rate reached 5%.

THE third cause she was special offer services management property and wallets For depositors and its borrowers, which at first seemed like an innovative idea that particularly appealed to Wall Street investors, until it turned out to be disastrous.

And the fourth cause she was offender operation of internal services control and management hazard of the bank itself.

Inside first trimester Q1 of 2023, First Republic Bank, saw that deposits are deleted which exceeded $70 billion and were directed to other banks with higher deposit yields. THE pace of withdrawals he had increase exponentially following the collapse of Silicon Valley Bank on March 9, 2023.

On the contrary, themselves depositors stayed like borrowers at the bank, taking advantage little interest their loans. At the same time, the bond portfolio held by the FRB had lost much of its value due to the Fed’s interest rate hike. And the administrators from the link wallet they had not hedged the risk of rising interest rates and falling bond valuations on secondary debt markets.

Does this story remind you of anything? But of course its case Bank of Silicon Valley.

With single difference, the customers of the two banks. THE SVB he had clients venture capital and start-ups, while FRB rich individuals. There’s one more difference, which refers to the size of the problem. The name bankruptcy of the FRB is the second largest in the history of commercial banking in the United States. The largest was Washington Mutual Bank (WaMu) in September 2008, with WaMu having $328 billion in assets.

The assets of the FRB amount to 233 billion dollars. At this point, it should be noted that the FRB already had received from the beginning of 2023 in addition liquidity height $30 billion by a consortium of 11 American banks, in an attempt to avoid the fate.

At the time of this writing, as candidates white knights for First Republic Bank, the Bank of AmericaTHE JP Morgan and the PNC Financial of Pittsburgh. THE issue it is not a question of whether the saviors will be found, which is almost always the case, if one recalls that JPMorgan had acquired Bear Stearns in March 2008 and Washington Mutual in September 2008 and Bank of America Merrill Lynch on same month.

THE issue East treatment of generators causes leading to problem states, American banks. And these causes are related to legislativeregulation and supervision frame of the American regional banking system and with the banks’ internal control and risk management function.

THE look scholarships analysts is pushed to the bottom study deposits rest and other regional bankswho may have been affected or be affected in the coming the resurgence of the banking crisis, the climate of anxiety and the decline in confidence.

In particular in case where the fed require extras capital or additional injections of liquidity, from banks with insufficient capital and lax risk management. For now, analysts are focusing their attention on balance sheets of KeyCorp, East West Bancorp and Bank OZK, which for the first quarter were in satisfactory condition.

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