The US authorities and the country’s major banks are working hard to find a way out Bank of the First Republic and avoid what would be the fourth bank collapse in the country in just a month and a half. The regulators are looking a private solution just a few hours after Federal Reserve (Fed) recognized Failures in Supervision of Silicon Valley Bank that helped bring about his end.
The prophetic words of Jamie DimonChairman of the board of JPMorgan ChaseThe fact that the US banking crisis was not over a few weeks ago resonated louder than ever this weekend.
In fact, your company is among those negotiating with the country’s authorities to take over First Republic Bank, a San Francisco bank that is about to experience its fourth financial downturn in the last five weeks. It is also in process PNC Financial Services Group. However, according to the American press, these two units are the ones with the most possibilities Bank of America He would also weigh numbers, as CNBC reports.
And the banking crisis afflicting the United States does not appear to be over yet. After weeks of rumors about First Republic Bank’s situation, the company confirmed the weakness of its financial position with this announcement earlier this week had lost $100 billion in deposits and that he had to replenish it with funds from the Federal Reserve.
In the first quarter of the year, the company’s deposits fell to $104.47 billion, compared to $176.43 billion with which it ended the fourth quarter of last year. Added to this is the emergency liquidity provided by a group of eleven companies in March.
Therefore it was of little use the rescue of 30,000 million that JP Morgan, Citigroup, Bank of America, Wells Fargo and seven other banks provided to the company last March, while an exit was found for Silicon Valley Bank.
Like the Santa Clara-based bank, also in California, First Republic Bank’s investment portfolio was affected by the sharp rise in interest rates in the United States.\Confirmation of the bank’s weak position immediately sparked fear among investors. First Republic Bank lost more than 49% on the stock market last Tuesday and 30% on Wednesday.
Although it recovered 9% on Thursday, it lost another 43% on Friday. The value of its shares has risen from $14.26 to $3.51 in just one week, a decline of more than 75%..
In view of this very strong flight of liquidity, which has more than paid off on the stock market, In mid-week, the company proposed selling some of its assets worth up to $100 billion. The bank’s original intention was for another company to agree to take over these assets, even if the price was above the market price. claiming that the costs of a collapse would be higher for the rest of the sector, as it is intended to replace the losses of the deposit protection fund. Finally, the US authorities intervened to find a solution.
The rescue is likely to be an accelerated sale to another bank. Earlier this week, US authorities asked major banks whether they were interested in taking over First Republic Bank and, it was made public, at least JP Morgan Chase, the largest bank in the United States, and PNC. the sixth showed interest.
Jamie Dimon, CEO of JP Morgan.
Given this interest and with the aim of resolving this situation as quickly as possible, FIDC has requested both entities to do so to present your offers this Sunday. The US authorities are therefore looking for a private solution that will prevent FIDC from having to pay for the losses again, as was the case with Silicon Valley Bank.
It must be remembered that after the collapse of this company, the authorities decided to guarantee all deposits, not just those under $250,000, since less than 10% were guaranteed by law and they wanted to prevent taxpayers from losing their money. In addition, huge liquidity lines were made available to banks to mitigate new deposit leaks. At least in the case of First Republic Bank, it wasn’t enough.
Avoid a solution
What is clear is that the bank did this lost the trust of investors and our own customers – especially with a high purchasing power profile and favorable interest rates for mortgages and loans – exactly the most important asset a company must have. The situation for First Republic Bank is currently critical.
The authorities are looking prevent the situation from ending in a solution scenariobecause in this case, for the sake of consistency, they would again have to guarantee all customer deposits in addition to the $30 billion that the eleven banks led by JP Morgan had lent to First Republic Bank in March.
Currently, about $17 trillion in system-wide deposits in the United States are guaranteed by the $100 billion in FDIC funds, about 60% of the total.
And with each of these crises, which occur very quickly, the authorities’ scope for action decreases. In the case of Silicon Valley Bank 48 hours was enough Distrust, so the bank had to file for bankruptcy. In the case of First Republic Bank, the decline comes in less than a week.
At the beginning of the five weeks that separate the two crises The US authorities confirmed the solvency of their banks. “The banking system of the United States is robust and has some solid fundamentals“especially due to the reforms implemented after the financial crisis that ensured security for the financial industry,” said a statement signed by Janet YellenSecretary General of the United States Department of the Treasury, Jerome PowellChairman of the Fed, and Martin J. Grünbergits counterpart at the FDIC.
Resilient or not, the truth is that the United States financial system is in a crisis whose end is unclear. And the Fed is already predicting that this could have consequences “a mild recession that would begin at the end of this year, with recovery over the following two years”.
The Fed Council meets in two days to make its next monetary policy decision, and it doesn’t appear that this recession threat will significantly change its plans. The central bank is scheduled to raise interest rates by another 25 basis points. This is likely to be the last increase in the price of money this cycle. We will have to wait and see how the financial sector, especially the regional sector, which has already been severely affected, copes with this new rise.