On Monday, First Republic Bank to be third bank United States of America intervened By regulators in the last two months after Silicon Valley Bank and Signature Bank. With the sale of the majority of the California-based entity’s assets to JPMorgan Chase and the deposits being guaranteed by the entity, second largest bankruptcy since an American bank Washington Mutual in 2008
Together they breathed a sigh of relief. HE Bank Systemthe president assured Joe Biden, “is-is durable and this is it Of course”. “This part of the crisis is over”, also convicted Jamie Diamond, CEO JP Morgan. But Dimon himself spoke of only one “part”, conceding that other smaller institutions may have their downfalls. And Questionsnerves, fears and the threat of insecurity still persists.
Why did the First Republic collapse?
Founded in San Francisco in 1985, the organization grew to become one of the largest in the US with 229,000 million assets, despite being far from the giants of the industry. He was known for having the majority. high net worth clients and for them wealth management services.
As in the case of Silicon Valley Bank, numerous investments on assets such as mortgages and public debt interest rates were low and suffered negative effect When Federal Reserve its started aggressive increase policy to take control inflation and these assets lost value. Also as SVB and Signature, risk management associated with this turn of the central bank traitor.
In March, after these two organizations went bankrupt Deposit leak due to panic fueled by social networksand as part of an extraordinary public and private effort to stop the bleeding, the First Republic received a $30 billion injection from other major organizations. The mattress did not fix the problems and persistent fears due to the instability of the system and the inability of the bank to fulfill its obligations, stores by the First Republic Withdrawn more than $100,000 million in six weeks After the fall of SVB.
Its value fell 97% on the stock market. And the government intervened and started a process to search for a buyer, which was resolved in a Monday morning sale announcement to JPMorgan Chase.
Controlled or present risk?
Some economists and observers believe that there will be no contamination and what are they problems content Signature for First Republic and SVB and features and moodiness assets. Among them is William Chittenden, a professor of finance and economics at Texas State University. niche one of their customers (mostly from the technology sector) High deposit percentages over $250,000 (The ceiling currently covered by the deposit Federal Deposit Insurance Corporation, FDIC, despite being overcome in this crisis) and investing in long-term assetsthose most affected by the change Fed rate policy (expected to confirm another increase this Wednesday). According to the expert, “e” in three areasthe excesses and the risks they managed very poorly.”
But others believe that the wound did not stop bleeding. Robert Jockett, a Cornell law professor specializing in finance, “not from the end March banking crisis, but a continuation of the beginning”. This deposit leaksAlthough it decreased compared to March, it continues to affect regional assets. those banks apply for emergency loans more people. And Balance sheets do not fully reflect realitybecause if businesses had to sell some of their assets today, these accounts would reflect currently unrecognized losses.
Also the acquisition of the First Republic JPMorgan TrackingAlready the largest bank in the United States, the banking giant is alarmed by the unstoppable growth. senator Elizabeth WarrenIn a statement on Monday, he denounced the bankruptcy “shows how deregulation is done”. The ‘too big to fail’ problem is even worse.
Arrangement
The bankruptcy and acquisition of the First Republic took place after Friday. Federal Reserve make a report publicly available collapse autopsy two other entities. In addition to pointing to the mistakes of these banks and the new reality that new technologies have allowed both panic to spread and deposit run-offs to accelerate, the central bank also said that a Mea Culpa talked about his own failures and said,Weaknesses in regulation and oversight what to deal with.”
For example, the Fed admits that it “doesn’t appreciate the seriousness of the critical shortcomings” in the SVB and therefore values it “even when conditions deteriorate and significant risks arise to its stability and soundness”.
At the heart of the storm are regulatory changes. Congress in 2018 and the Fed in 2019 they did relaxing Audits brought in banking, Dodd-Frank Law After the big crisis in 2008 and 2009.
Now the Fed is thinking Re-evaluate rules for regional and medium-sized banks with at least 100,000 million assets to impose more demanding stress tests and liquidity requirements. Moreover, he promised Examine how it protects against rate hike risks interest. Also recommends new administrative compensation limits.
monday also FDIC submitted a report containing Changes, with three options; Maintain the current $250,000 limit on insured deposits, act to cover them all regardless of amount, or set different limits based on different types of personal or business accounts. He chose this third way, although he did not give specific details and did not make a decision as it had to be approved by the General Assembly. Congress.
Many consider it imperative that the Chambers take action to intensify regulations, but legislative initiatives Startups after March bankruptcies they have never produced fruit.