Economist Mohamed El-Erian sees trouble for smaller and regional banks Wei Leng Day/Bloomberg via Getty Images
First Republic Bank has been in crisis this week amid concerted efforts by major banks to stabilize its finances and the federal government guaranteeing deposits at two failed banks earlier this month.
San Francisco-based First Republic continued to teeter on the edge Monday, with its shares plunging more than 47%, briefly hitting an all-time low just before the market closed, and trading was halted several times throughout the day. Shares of First Republic have fallen 90% in the past month, almost all of the losses since March 8, the day Silicon Valley Bank announced. Share Sale Schemes And it triggered a $42 billion bank run and seizure by federal regulators.
But even so Clears government operations Small and regional banks are still restless to ensure bank depositors’ money is safe, leaving First Republic at high risk of another dangerous run. After SVB’s collapse, its customers withdrew about $70 billion in deposits, or nearly 40% of its total holdings. The Wall Street Journal reported Sunday, citing people familiar with the matter.
Withdrawals eased somewhat last week after a consortium of 11 banks, including JPMorgan Chase and Bank of America, jointly announced on Thursday. $30 billion in deposits in the First Republic to help stabilize it. But in the long run, the bank is not very safe, especially after many rating agencies Fitch Ratings, Moody’sAnd S&P Global Last week it gave negative credit ratings to the bank.
S&P Global’s assessment revealed some problems at First Republic, where 68% of the bank’s deposits are uninsured—though significantly lower than the 94% uninsured deposits at SVB. First Republic has a significant liability-to-asset ratio of 111%, meaning it has more money on loan than it has readily available in bank deposits.
“People are doing something irrational but completely understandable,” says Mohamed El-Erian, an economist and president of Queen’s College at the University of Cambridge. said Bloomberg There has been a flurry of remittances in small banks like Republika since Sunday. “Where are they moving deposits from? Small and regional banks will become big banks,” he added.
Big banks have seen a huge influx of customer deposits in the past week as people worry about the ability of smaller banks to protect their money. Bank of America added more than $15 billion in deposits last week following SVB’s collapse. JP Morgan and Citi began speeding up their regular registration process to accommodate the influx of new account holders. Financial Times reported Last week.
As big banks benefit from the troubles of their smaller counterparts, many of them have rejoined the Republic from this week in another rescue plan. JP Morgan CEO Jamie Dimon is leading other major bank leaders to turn some or all of their $30 billion in deposits into capital infusions, and is exploring a separate investment or even a sale of the bank. The Wall Street Journal reported Monday.
First Republic spokesperson said Good luck The bank is solvent and able to meet customer needs after a $30 billion bailout last week.
“Following $30 billion in uninsured deposits by the country’s 11 largest banks on Thursday, First Republic Bank is in a position to manage short-term deposit activity with cash on hand,” he said. “This support reflects confidence in First Republic and its ability to continue to provide unwaveringly exceptional service to its customers and communities.”
But the coming days and weeks will be shaky for First Republic and other small and regional banks. Meanwhile, banks are scrambling to increase their reserves. Banks borrowed heavily last week $152 billion A tool banks can access short-term and last-resort loans – through the Federal Reserve’s discount window. In the previous week, banks borrowed about $4.6 billion. The previous record was $111 billion borrowed during the 2008 financial crisis.
“It’s going to be very bumpy moving forward,” El-Erian said Bloomberg Risks for small and regional banks.
UPDATE: This story was updated with shares of First Republic at market close on Monday.