The unsettling collapse of a third medium-sized American bank within two months raises serious questions about the current administration’s ability to manage the nation’s financial stability.
The Federal Deposit Insurance Corporation (FDIC) is on the verge of taking over First Republic Bank, signifying the third medium-sized American bank to collapse in less than two months – a disturbing trend that seems to be escalating under the current administration.
San Francisco-based First Republic Bank primarily serves affluent clients with account balances exceeding the $250,000 deposit threshold backed by the FDIC. Following the recent collapses of Silicon Valley Bank and Signature Bank, many customers have been withdrawing their funds, leading to an alarming loss of confidence in the financial system.
In response to the crisis, FDIC officials have scrambled to secure both insured and uninsured deposits at the two failed banks in an attempt to stave off bank runs at other institutions.
According to an anonymous source who spoke to Reuters on Friday, regulators have deemed First Republic Bank’s unstable position so critical that an FDIC takeover is imminent, leaving no time for executives to pursue a private bailout deal.
In a stark indicator of the bank’s dire situation, First Republic Bank’s shares plummeted more than 43% on Friday, bottoming out at $3.51 before markets closed. This represents a staggering 97% loss for investors, as the company’s stock was valued at $121.54 at the beginning of the year.
The announcement of the FDIC takeover comes on the heels of First Republic Bank’s first-quarter earnings report, which revealed that deposits at the company had shrunk from $176 billion on December 31 to $104 billion on March 31. Included in the end-of-month total was a $30 billion loan provided by major financial institutions such as Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup – a deal facilitated by the federal government to maintain First Republic Bank’s solvency.
Despite this intervention, the bank’s executives promised in the earnings report to “strengthen its business and restructure its balance sheet” through various measures, including increasing insured deposits, reducing borrowed funds from the Federal Reserve, and lowering loan balances to “correspond with the reduced reliance on uninsured deposits.” Furthermore, the bank planned to cut employee headcount by 20-25% in the second quarter, slash executive compensation, and consolidate corporate office space.
First Republic Bank Chairman Jim Herbert and CEO Mike Roffler insisted in the report, “With the stabilization of our deposit base and the strength of our credit quality and capital position, we continue to take steps to strengthen our business.” They added, “We remain fully committed to serving our communities, and we are grateful for the ongoing support of our clients and colleagues.”
First Citizens Bank acquired Silicon Valley Bank at the end of last month, purchasing $72 billion of its assets at a $16.5 billion discount, while the FDIC retained $90 billion. Meanwhile, New York Community Bancorp acquired Signature Bank for over $38 billion.
Earlier on Friday, Federal Reserve officials attributed Silicon Valley Bank’s failure to a “textbook case of mismanagement,” where executives neglected to properly assess macroeconomic risk and volatility within the technology sector – a sector on which the firm heavily relied. Monetary policymakers, during a meeting last month, predicted that the financial system’s turmoil, which began with Silicon Valley Bank, warrants a recession forecast by year’s end, according to minutes released by the Federal Open Market Committee and the Federal Reserve Board of Governors.
This alarming series of bank collapses should serve as a wake-up call to those in power. The current administration must address these mounting financial woes before the situation spirals further out of control and takes an even greater toll on American citizens.