First Republic Bank collapse spurs fears for banking system, broader economy

The demise of First Republic Bank raises questions about the strength of the U.S. banking system and the broader economy that relies on it.

Monday’s shutdown marks the nation’s second-largest bank failure — First Republic Bank had nearly $230 billion in assets last month — eclipsing the Silicon Valley Bank collapse. Three of the four largest bank failures in U.S. history have taken place over the last two months.

The Federal Deposit Insurance Corporation (FDIC) on Monday took control of the San Francisco-based regional bank and brokered its sale to JPMorgan Chase. The deal will protect deposits, likely wipe out shareholders and make the nation’s largest bank even bigger.

First Republic’s fate was set when the bank revealed that it lost $100 billion in deposits after SVB’s collapse led to panic among wealthy clients. Its stock plummeted 75 percent last week.

It’s unclear whether First Republic Bank is the final domino to fall in the recent banking crisis. That could hinge on whether depositors will pull their money from other institutions.

“This part of the crisis is over,” JPMorgan Chase CEO Jamie Dimon said Monday, adding that he believes the financial system is strong but it’s possible a smaller bank could fail.

Will more banks go under?

*_{A person walks by the First Republic Bank headquarters on March 13 in San Francisco, Calif. (Photo by Justin Sullivan/Getty Images)}*

First Republic relied heavily on wealthy clients, with more than two-thirds of its deposits surpassing the FDIC’s $250,000 insurance limit. While that was a lower ratio than at SVB, it was higher than other regional banks, prompting depositors to pull their money over fears of losing it.

The bank faced hefty unrealized losses on long-term Treasury bonds, which saw their value plummet after the Federal Reserve hiked interest rates, hurting its ability to raise cash to cover deposit outflows.

While other banks don’t have as many uninsured deposits and outflows slowed after regulators took action to protect all uninsured depositors, the banking sector is flush with the same kind of paper losses on investments.

U.S. banks had $620 billion in unrealized losses on securities at the end of 2022, according to the FDIC. A March study from professors at New York University and Wharton estimated that their unrealized losses are closer to $1.7 trillion when accounting for all loans and securities.

The sector holds around $3.1 trillion in commercial mortgages, with small and regional banks accounting for 80 percent of those loans, according to Goldman Sachs analysts. As remote work remains popular, office buildings have lost value, raising the chance of defaults.

Banks can typically stomach those losses unless they face a bank run or market selloff.

An exchange-traded fund for regional banks such as First Republic dipped 2.4 percent Monday. The fund is down around 30 percent since early March. JPMorgan’s stock rose 2.3 percent on Monday.

American Bankers Association CEO Rob Nichols said that Monday’s sale will “bolster confidence in the nation’s banking system.”

Rebeca Romero Rainey, CEO of Independent Community Bankers of America, urged policymakers on Monday to differentiate regional banks from smaller community banks, which don’t rely on uninsured deposits.

Another threat to a slowing economy

_{Bed Bath & Beyond shopping carts are left in a corral in Flowood, Miss., on April 24. One of the original big box retailers, the company filed for bankruptcy protection on April 23 following years of dismal sales and losses. (AP Photo/Rogelio V. Solis)}

Most chief economists saw the U.S. falling into a recession in 2023 before several major banks collapsed this year. Consumer spending is falling after years of sky-high inflation and interest rate hikes aimed at slowing demand for goods and services.

The forecast is even gloomier now that big banks are pulling back on lending to reduce risk on their balance sheets. Reduced access to credit will slow the growth of new businesses and hurt employers’ ability to invest in their company and hire more workers, experts said.

“The banking system touches many areas of our lives, from our own money to the money of the companies that employ us, and the economic stability of those companies,” Callie Cox, investment analyst at eToro, said in an email.

“Small problems can become big problems in a flash. It’s the downside of a centralized financial system.”

About the Author: Patriotman

Patriotman currently ekes out a survivalist lifestyle in a suburban northeastern state as best as he can. He has varied experience in political science, public policy, biological sciences, and higher education. Proudly Catholic and an Eagle Scout, he has no military experience and thus offers a relatable perspective for the average suburban prepper who is preparing for troubled times on the horizon with less than ideal teams and in less than ideal locations. Brushbeater Store Page: http://bit.ly/BrushbeaterStore

One Comment

Ghostmann May 2, 2023 at 09:09

Collapsing banks and on that cusp of hyperinflation. It’s about total centralization and secrecy. You think that this new system is going to be fair? LMAO, in the words of the puppet… C’mon man!

There is going to be the beast system, then those of us outside of it. That’s it. That’s the line. All this nonsense about puppet 2024, or influencer shemale vitality, it’s all irrelevant because the information is actually good, but the solutions proposed are dogshit because their job is to get you into the beast system via consent. “Seat at the table” as my favorite double agent said during one of his radio shows. Or giving the security forces ammo and body armor as my favorite non-Texan Texan has suggested… after destroying his ar pistols.

Now to solutions….

Local community. Local economy. Take resources from their system and parlay them into ours, but give nothing in return. No support, nothing. Face to face transactions using decentralized means. Don’t use their CBDC or their social credit score. Now, since that would be a drain on their economy, understand that’s when the security forces – i.e., Law enforcement, National Guard, and peacekeepers – get sent out to get our asses back onto the plantation.

That’s where the 2nd Amendment comes in. Not into some cucked, punisher skull wearing but Gandhi nonsense. Legit light infantry that can do what needs to be done to make your separatist region a no-go zone for them. Make it too painful on them to get you back on the plantation. Of course since the use of force is a failure of authority, every action by them will only garner you support. They are in a no win situation at that point.

You will never see the current security forces go into Chicago or the worst parts of Philly or name any other city. 12 year olds with glock switches can make it so painful for the uniformed services that guess what? They don’t go there do they? When they do, then the calls for defunding police and the protests and riots start right up and you what they do? They run like the cowards they are. That should be a lesson. Not this scared conservative mentality of “2A but I support the blue.”

They aren’t afraid of showing up at people’s door if they bought more than one gun, like what we saw with the local cops and ATF in Delaware. Yes, the local cops are not your friend in this. Stop pining for them to be that. It’s you and yours and quite frankly, those who do not benefit from the total centralization of everything.