Banks: Not Out of the Woods

COIN MARKET INSIDER • VOLUME 33 • ISSUE 9


Banks: Not Out of the Woods

Just when Wall Street and Washington DC wanted Americans to believe that the banking crisis was behind us, along comes the second largest bank failure in US history as First Republic Bank has been seized by regulators and “sold” to JP Morgan Chase. 

This is, in reality, one of those “shotgun” marriages arranged by the FDIC. First Republic ceases to exist and JP Morgan Chase is forced to take on the assets of a bank it would otherwise have avoided like the plague.

There are also other aspects to this banking crisis that investors cannot afford to ignore.

While our politicians and federal regulators like to remind us that deposits are insured, that is far from saying that the banking system is healthy. Clearly, it is not. Investors are withdrawing deposits from regional banks at virtually unprecedented rates, which is not just bad for banks, it is bad for bank stocks, which are a significant sector in the stock market. In other words, the fallout from the banking crisis is far from over…

Banks Are Not Out of the Woods Yet!
Regional bank stocks fell sharply as the fallout from the third major bank failure this year continued to put pressure on the sector.

The recent bank failures and expected regulatory changes in response to them have also raised questions about the long-term profit outlooks for mid-sized regional banks.

Another issue for the regional banks is the possibility of more Fed rate hikes. 

Higher rates will make it more costly for the banks to hold on to their deposits while also lowering the market value of the long-dated bonds and loans on their books.

Regulators seized First Republic Bank and struck a deal to sell the bulk of its operations to JPMorgan Chase & Co., heading off a chaotic collapse that threatened to reignite the recent banking crisis.

• JPMorgan said it will assume all of First Republic’s $92 billion in deposits—insured and uninsured. It is also buying most of the bank’s assets, including about $173 billion in loans and $30 billion in securities.

• As part of the agreement, the Federal Deposit Insurance Corp. will share losses with JPMorgan on First Republic’s loans. The agency estimated that its insurance fund would take a hit of $13 billion in the deal. JPMorgan also said it would receive $50 billion in financing from the FDIC.

Three of the four largest-ever U.S. bank failures have occurred in the past two months.

Central bank supervisors ‘failed to take forceful enough action’ to avert the collapse, the report says…

The banking crisis that formed from the failures of Silicon Valley Bank (SVB) and Signature Bank was the result of a wide range of factors, including Federal Reserve supervisors…

They didn’t do enough to make sure that SVB management fixed the company’s problems, according to a new report from the central bank.