- First Republic tried to reassure customers after the stock price crashed following the SVB collapse.
- The average customer deposit is well below the insurance limit of $250,000, according to the bank.
- However, about 68% of bank deposits, or about $120 billion, are uninsured.
First Republic Bank sought to reassure customers that their deposits were safe, as local lenders scrambled to mitigate contagion fears caused by the Silicon Valley Bank collapse.
SVB is Closed by California Regulators It was acquired by the Federal Deposit Insurance Corporation (FDIC) on Friday after its stock price crashed after a failed $2.3 billion capital raise.
With assets of $209 billion and deposits of about $175 billion at the end of last year, it was the largest bank failure since Washington Mutual in 2008 and the second largest on record.
A significant portion of that deposit is uninsured, so customers could suffer significant losses if no new buyers are found.
SVB’s problems were fueled by higher interest rates, hurting its bond portfolio and increasing outflows from corporate clients, which could affect other banks of similar size. I have concerns that there is. There are concerns that some customers of other local banks such as First Republic may also decide to withdraw their funds.
First Republic scrambles to reassure investors
First Republic’s stock price plummeted by a third last week as SVB imploded. Shares of a similarly sized regional bank, Western Alliance, fell at a similar rate.
Large banks such as Bank of America and JP Morgan also fell, but shares stabilized on Friday, with First Republic widening its losses.
According to the latest 10-K filing With over 80 branches in seven states, First Republic had $176.4 billion in deposits at the end of 2022. Of that, $119.5 billion was uninsured. Although much smaller than SVB’s 89%, its 68% share is quite large.
in a regulatory filing on FridayFirst Republic reassured customers of its liquidity position as its share price fell.
The average size of customer deposits is $200,000, which is below the FDIC-insured limit of $250,000, while the average business account holds $500,000.
“First Republic’s liquidity position remains very strong,” the bank said. “Funding sources beyond our well-diversified deposit base include more than $60 billion in unutilized borrowing capacity available at the Federal Home Loan Bank and the Federal Reserve.”
Prolonged risk of infection
But investors are far from convinced that the First Republic has eased fears of contagion.
Similar to the SVB, First Republic’s latest filing showed a significant discrepancy between the assets’ fair market value and balance sheet value. These primarily relate to mortgages, whose rates rose last year along with the Fed’s key rates.
Like SVB’s bond holdings, First Republic’s long-term mortgage assets are most likely worth less than they actually are.
Brian Levitt, Global Market Strategist at Invesco told an insider SVB and First Republic in particular have emerged as banks with balance sheets ill-prepared for rising interest rates and a potential recession.
“Investors who smell blood turn their attention to the next bank exposed to interest rate risk and specific credit risk, and then to the next bank.” First Republic Bank is next on the list.”
Billionaire investor Bill Ackman tweeted on Saturday that regulators had 48 hours to “soon fix irreversible mistakes” that could engulf the entire banking sector. It warned and reflected the fear of contagion.
Regulators may step in to create a broader safety net to keep struggling banks more deposits to calm nervous customers.
reported by Bloomberg The FDIC and Federal Reserve are discussing setting up a means to create backstops to secure more deposits at banks that have run into similar problems to the SVB.
First Republic did not immediately respond to an Insider request for comment outside of normal business hours.