The second-biggest bank failure in American history occurred just this week, and it was the third major bank collapse this month after the Silicon Valley Bank and Signature Bank. First Republic Bank revealed in their first quarter earnings call that deposits fell by 40%, which amounted to a mammoth $100 billion. Could this be the start of the next banking crisis in the USA?
This all started after the collapse of Silicon Valley Bank and Signature Bank, which failed in March due to a spike in interest rates. First Republic Bank was seen as the next risky bank due to its very similar client demographic. First Republic Bank had over $120 billion in uninsured deposits. This affected the confidence of the clients at First Republic Bank and resulted in their clients withdrawing their deposits. Banks tried to make up for the withdrawn deposits by injecting $30 billion into First Republic Bank, but this was very short-lived.
Towards the end of April, First Republic Bank released its earnings, which showed that over $100 billion had been withdrawn from the bank. There is a greater risk that First Republic Bank would be seized by regulators and the stock would completely plummet.
However, JP Morgan did buy the First Republic Bank. Therefore securing most of its assets and a hundred billion dollars worth of deposits. Jamie Dimon said that the government invited us and others to step up, and we did.
“Let me be very clear: All depositors are being protected,” Biden said in remarks from the Rose Garden. “Shareholders are losing their investments. And critically, taxpayers are not the ones that are on the hook.”
The US President
The main question is whether this will happen to other banks and whether America is on the brink of collapse.
Economist Mohammed El Erian said that “now we have stage 2, where banks that are not particularly badly managed—they have issues but they’re not particularly badly managed—are suddenly vulnerable,” El-Erian warned, pointing to regional lenders that have been struggling since First Republic’s failure this week. “The cancer within them is starting to spread, and we’ve got to keep an eye on that,” he added.
Written by Mueez Lodhi
Produced by Madhav Bhimjiyani