Will the Sale of First Republic Prevent a Pending Financial Crisis?
Written by
Yaël Bizouati-Kennedy
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The $30 billion 11 banks injected into embattled First Republic Bank in March wasn’t enough to prevent it from crashing. On May 1, JPMorgan Chase acquired most of the assets and “assumed the deposits and certain other liabilities” of First Republic Bank, following the bank’s seizure by the Federal Deposit Insurance Corporation (FDIC) and ensuing a “highly competitive bidding process.”
“I don’t think the sale of First Republic will prevent a pending crisis. If anything, it is causing greater unease in the markets,” said Christopher Alexander, CCO of Liberty Blockchain. “A recent Gallup poll has almost half the country very to moderately worried about their deposits. The markets and public confidence are like a plane landing in high winds right now. The government appears to be over-correcting and we swing one direction then swing back the other way. For example: they encourage banks to buy bonds, then interest raise rates that damage the banks that bought them. SVB, Signature and First Republic all had issues with this.”
Yet, on May 3, the Federal Reserve said that the banking system was “sound and resilient.”
And at the FOMC-post meeting press conference, Chair Jerome Powell said that conditions in that sector have broadly improved since early March, and the U.S. banking system is sound and resilient.
“We will continue to monitor conditions in this sector. We are committed to learning the right lessons from this episode and will work to prevent events like these from happening again,” he added, according to a transcript of his remarks.
When asked whether the country was in the early stage or nearing the end stage of the banking turmoil among regional banks, Powell said that the resolution and sale of First Republic “kind of draws a line under that period of — is an important step toward drawing a line under that period of severe stress.”
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Yet, with the continued turmoil in the banking sector — both investors and consumers remain jittery about contagion as well as the impact on the broader economy.
“Yes, First Republic Bank was saved; but sentiment remains mixed over the possibility of a systemic issue,” said Marco Santanché, Hedder‘s quant fellow. “Will other banks fall? Probably, but this is – as it stands — not enough for a 2007-style financial crisis.”
Indeed, in March, a study found that a staggering 190 banks are at risk of collapsing even if only half of their uninsured depositors decide to withdraw their funds.
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