First Republic’s crisis is not an isolated incident

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JPMorgan Asset Management executives question how U.S. regional banks will ‘operate’ when the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Bank (FHLB) emergency lending programs expire. Not sure, warns of possible bankruptcy of First Republic Bank. It can cause a domino effect.

on Bloomberg TV on April 27. interviewBob Michele, chief information officer at JP Morgan Asset Management, said the impact of First Republic’s liquidity problems, caused by massive deposit outflows, was not “limited” to the bank itself. said it could affect the banking industry as a whole.

When asked whether he considered this a “First Republic problem or a banking problem”, Michele emphasized that this was not an isolated incident.

“Well, I think we have both. I think it’s a bit naive to say this is limited to the First Republic.”

He added that the liquidity problems faced by the First Republic “should never have happened” because banks are “the most heavily regulated capital industry on the planet.”

Michele believes that the effects of the collapse of the First Republic must be contained, or “enclosed,” to prevent it from spreading throughout the wider financial system, requiring “continuous progress towards some solution.” .

Michele blamed “high prices of everything” as a key factor leading to the recent events of the banking crisis.

He said “most people’s” bank balances are even lower than they were before the Covid-19 pandemic began.

Michele believes that local banks are “hugely dependent” on both the FDIC and the FHLB, so solutions are urgently needed.

“I think local banks rely heavily on the FDIC. They rely heavily on the Federal Home Loan Bank to get additional cash. I don’t know if it works for

In the last quarter of 2022, both Signature Bank and Silvergate Bank reportedly received significant loans from the FHLB, a consortium of 11 regional banks across the country that provide funding to other banks and lenders. Each.

However, despite the financial assistance, both banks eventually collapsed due to massive deposit outflows.

Related: Bitcoin price surges after First Republic Bank price crash

In a tweet to his 322,000 followers on April 29, Ryan Serkis, CEO of blockchain research firm Messari, said the government was “responsible and not cryptocurrency” in the policies of the Federal Reserve (Fed). “Unless they recognize that,” he suggested, more banks could face collapse. future.

This is because Treasury Department officials have increased current deposit insurance to over $250,000 to cover all U.S. deposits, “people in the know” told Bloomberg on March 21. It is reported that they are considering ways to expand

Bank deposits in the United States totaled $17.7 trillion as of December 31, according to the FDIC.

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