“One more bank failure: First Republic Bank. JP Morgan immediately swoops it up. Highlights strong domestic US financial institutions with significant capital & capable leadership. India too must nurture strong institutions backed by reliable domestic capital,” Kotak tweeted on Monday night.
Government regulators seized and sold off First Republic Bank on Monday, making it the third bank to fail this year after Silicon Valley Bank and Signature Bank collapsed in March.
The three banks held a total of $532 billion in assets. That’s more than the $526 billion, when adjusted for inflation, held by the 25 banks that collapsed in 2008 at the height of the global financial crisis.
The collapse of Silicon Valley and Signature Bank in March led to fears of fallout for the broader industry. Higher interest rates have eroded the value of assets on banks’ balance sheets, stressing the financial system and making it harder for banks to pay back depositors if they decided to withdraw their money.
First Republic received a temporary $30 billion infusion from the nation’s biggest banks in March as a way to restore clients’ confidence. But customers withdrew a staggering $102 billion in customer deposits over the first quarter of this year, according to the bank’s quarterly earnings report filed Monday.
By the close of trading Friday, the company’s stock price had dropped more than 75% last week.Similar to Silicon Valley Bank, First Republic had many startup industry clients, and many of its accounts held more than $250,000, the amount covered by federal insurance.
The regulations put in place for the nation’s biggest banks after the financial crisis include stringent capital requirements, which means they must have a certain amount of reserves for moments of crisis, as well as stipulations about how diversified their businesses must be.
But mid-size banks like First Republic, Silicon Valley and Signature do not have the same regulatory oversight. In 2018, President Donald Trump signed a law that lessened scrutiny for many regional banks. Silicon Valley Bank CEO Greg Becker was a strong supporter of the move. Among other things, the law changed requirements for the amount of cash that these banks had to keep on their balance sheets to protect against shocks.
