After the fall of First Republic, experts assured it was the last major bank to collapse. Is it true?
The fall of another major banking institution threw markets in chaos as a recession seems to be looming on the Western economy. During the weekend, the US bank First Republic collapsed and was subsequently acquired by JP Morgan.
First Republic owned $229 billion in assets, which were bought by JP Morgan thanks to a government subsidized FDIC agreement. First Republic’s deposits amounted to $104 billion at the time of the crisis.
First Republic was doomed to fail after its release of Q1 earnings, pertaining to the first fiscal period of 2023. Their deposits had declined by 56.7%, or roughly $100 billion, signaling the impending collapse of the whole institution.
In its earnings release, First Republic announced that it was taking actions to restructure its balance sheet, but was eventually forced to file for FDIC receivership. This meant a sure path towards collapse, kept under control by the US government.
Once the news of the FDIC receivership leaked, the bank’s shares dropped a further 40%, possibly accelerating its demise.
The fall of First Republic marks the second biggest bank termination in American history, outclassed only by Washington Mutual and its $307 billion collapse in 2008. If that of 2008 was the worst crisis in modern history, then what awaits us now?
Is First Republic the last bank to fail?
The question many are anxiously asking is whether or not this collapse will spill over the rest of the banking system and, therefore, the overall economy.
First Republic is the third major bank to fail in less than three months. Signature and Silicon Valley Bank were giants in their own right, and both fell into pieces in a matter of days.
According to JP Morgan CEO Jamie Dimon, First Republic was the last major bank to collapse. The crisis, according to him, is averted for now. “There may be another smaller one, but this pretty much resolves them all,” he said. “This part of the crisis is over. For now, let’s take a deep breath.”
US president Joe Biden also assured the public on Monday saying that the US banking system will survive.
But many others are skeptic. These collapses are happening because of the monetary tightening pursued by the Federal Reserve, as well as other major central banks.
In Europe, giants like Deutsche Bank and Credit Suisse were on the verge of bankruptcy before being bailed out by governments. Bank deposits are at historical lows.
The general hope is that banks will truly survive, and that we could even avoid recession if possible.
But neither of those options looks likely anymore.
