First Republic Bank Becomes Second Largest Bank In History to Collapse

A couple of months ago, the Silicon Valley Bank went bankrupt.

Now the nation's second-largest regional bank, First Republic, becomes insolvent. The Fed seized it overnight (Sunday night/Monday morning) so they could quickly turn it around and sell it to JP Morgan, and reassure everyone that Everything's Fine, Really! before the markets opened on Monday.

Is this the sign of the best economy in a generation, Jack?

JPMorgan bought First Republic on Monday in a government auction, culminating weeks of failed rescue attempts and aborted discussions involving some of the most powerful Wall Street executives and U.S. officials. The deal talks went down to the wire, according to two sources familiar with the situation. Four bidders, including JPMorgan, made it to the final rounds of the auction on Sunday night, one of the sources said.

JPMorgan did not know till about 1.15 a.m. in New York that it had won, even though final bids were initially due several hours prior. At one point late at night, as Dimon and other senior executives waited for the outcome of their bid, silence from Federal Deposit Insurance Corp (FDIC) made them think they had lost, one of the sources said.

The final deal, announced around 3:30 a.m., cements Dimon's reputation as one of Wall Street's most powerful bankers.

But the deal also raised fresh questions about the dangers of having banks that are too big to fail, the quality of regulatory oversight of the banking industry and the Biden administration's resolve to keep corporations from becoming too powerful through deals.

Another day in Brandon Nation.

The demise of First Republic Bank raises questions about the strength of the U.S. banking system and the broader economy that relies on it.

Monday's shutdown marks the nation's second-largest bank failure -- First Republic Bank had nearly $230 billion in assets last month -- eclipsing the Silicon Valley Bank collapse. Three of the four largest bank failures in U.S. history have taken place over the last two months.

The Federal Deposit Insurance Corporation (FDIC) on Monday took control of the San Francisco-based regional bank and brokered its sale to JPMorgan Chase. The deal will protect deposits, likely wipe out shareholders and make the nation's largest bank even bigger.

First Republic's fate was set when the bank revealed that it lost $100 billion in deposits after SVB's collapse led to panic among wealthy clients. Its stock plummeted 75 percent last week.

It's unclear whether First Republic Bank is the final domino to fall in the recent banking crisis. That could hinge on whether depositors will pull their money from other institutions.

I'm betting "No."

USA Today asks if the bank fell due to rising interest rates.

As in the case of Silicon Valley Bank and Signature Bank failure in March, the toppling of the First Republic Bank is being blamed, in part, on the Federal Reserve's aggressive interest rate hikes to tamp down inflation, which eroded the value of bank assets such as government bonds and mortgage-backed securities.

First Republic Bank, which has approximately $229.1 billion in total assets, also was one of the banks which was no longer subject to stringent oversight as a result of a Trump-era law which raised the asset threshold for enhanced regulatory standards from $50 billion to $250 billion.

Hm, I notice USAToday is blaming the Fed and blaming Trump. But they fail to point out that the Fed is only hiking interest rates because of Brandon's runaway inflation. And, as regards relaxed banking standards: Brandon and the Democrats could have changed the rules back if they'd wanted, right?

Seems like this is a rule that Brandon's megadonor banking friends liked. Maybe China, too.

Bank shares fell in value, as you'd expect, which put the rest of the market in a selling frame of mind.

U.S. stocks tumbled on Tuesday as the fallout from First Republic Bank's (FRC) failure continued to hit bank stocks and the Federal Reserve began its two-day meeting.

The S&P 500 (^GSPC) fell 1.48%, while the Dow Jones Industrial Average (^DJI) tumbled more than 400 points, or 1.4%. The technology-heavy Nasdaq Composite (^IXIC) dropped 1.24%.

...

Investors are worried the worst isn't over for regional banks. The S&P 500 regional banking index (KRE) was down over 6%, hitting a new 52-week low, according to Bespoke Investment Group. Shares of PacWest Bancorp (PACW) sank over 24%, while Western Alliance Bancorporation (WAL) plunged as much as 16%. The financial industry weighed down the S&P 500 by more than 2%.

Of course, this being the Age of Brandon, that wasn't the only bad news:

Government bonds slumped as fresh data from the Labor Department showed that the labor market continues to cool. The yield on the 10-year note was down to 3.4%, and two-year note yield fell to 3.9%.

Hottest economy ever, Jack!

Meanwhile, the White House and its decrepit puppet, whose skin is thinner than an onion's, had been insisting that it would only accept a "clean" debt limit increase bill that contained no requirements for Biden to stop spending like a drunken sailor, attempting to use the threat of default, combined with the media's agreement to blame Republicans for it, as leverage.

But the White House caved.

President Joe Biden on Monday finally requested that House Speaker Kevin McCarthy (R-CA) negotiate the debt limit during a meeting to be held on May 9 to avoid default, a move that contradicted the White House's previous official position.

While traveling in Israel, McCarthy received a call from Biden to schedule a meeting to negotiate raising the debt limit after days of stonewalling tactics, Punchbowl News reported.

"We are not negotiating on this," White House press secretary Karine Jean-Pierre said Thursday. "We've been very clear on this."

posted by Ace at 05:45 PM

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