First Republic Bank, after flailing for days, is getting a $30 billion cash injection from 11 of its its much-larger rivals, including such heavyweights as JPMorgan, Bank of America and Citi.
It's the high-finance equivalent of a GoFundMe.
Here's the deal: The midsize San Francisco-based lender has had a target on its back for a week because of its apparent similarities to Silicon Valley Bank, the tech-industry lender that collapsed a week ago. Specifically, First Republic has a huge amount of uninsured deposits above the $250,000 FDIC limit (sheesh, must be nice).
About 68% of First Republic's deposits were uninsured. Now, that's nowhere near the 94% that SVB had. But when SVB went belly-up and had to be rescued by federal banking regulators, First Republic's customers also started getting their cash out of the bank. That became a very big problem.
When you deposit money in a bank, it is only required to hold a portion of that in reserve — that's called the fractional-reserve system, and most major economies use it.
But First Republic has an unusually large 111% liability-to-deposit ratio. In other words, it has loaned out more money than it has in deposits, making it a particularly risky bet for investors.
So, great — First Republic is probably going to survive. So, like, crisis over?
Unlikely. (Though one prominent analyst declared to Bloomberg that the banking fiasco is over, so believe whom you will.)
What comes next?
There are still a lot of unknowns to keep investors up at night. While the cash infusion will almost certainly help stem the bleeding in First Republic's stock, it still has to deal with the longer-term problem of operating in a higher-interest rate environment. Customers might, understandably, be spooked and want to move their money over to one of First Republic's rescuers instead.
As the Wall Street Journal's Telis Demos wrote: the deal "may bolster the emerging narrative that the post-2008 regulatory regime has resulted in a two-tier system: Megabanks where it is always safe to deposit and do business, and everyone else."
Meanwhile, over in Europe, Credit Suisse is still scrambling to calm panicked investors.
The bank has lost about a quarter of its stock market value since the start of 2023, and more than 70% in the past 12 months, as a series of scandals, missteps and compliance failures have steadily undermined the confidence of investors and clients, my colleague Mark Thompson writes.
On Thursday, JPMorgan analysts said that allowing Credit Suisse to continue feebly limping along is "no longer an option."
One way out of this mess, the analysts said, would be for Credit Suisse's larger rival, UBS, to step in and buy it. But that's looking like a tough sell. According to Bloomberg, both UBS and Credit Suisse are balking at the prospect of a forced tie-up.
To be clear: The regional bank turmoil is not the same problem playing out at Credit Suisse. But with global markets on edge, setbacks on either side have the potential to spiral into fresh panic.
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