What I find interesting is that a lot of people are pointing to this and getting worried because these bank failures are the largest since the GFC. But aren't we actually so far seeing the opposite of what we should be worried about. In the GFC the problem that this all became a disorderly collapse. But so far this has seemed... pretty orderly? No depositors have been wiped out, no contagion has spread. Sure, equity holders got wiped out, but that's what equity holders are risking in return for their higher expected returns. It's difficult to celebrate "well things haven't completely blown up so far"... but, well, it's possible that this particular problem is actually being handled in a better way than last time.
Three out of five largest bank failures in the United States happened in the past two months (SVB, Signature, and First Republic):
<a href="https://en.wikipedia.org/wiki/List_of_largest_bank_failures_in_the_United_States" rel="nofollow">https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...</a>
This is bad news on two fronts:<p>* the risk driver for these ongoing smaller bank failures is (reportedly) the rise in interest rates. This concerns such a basic aspect of bank risk management one wonders how this sector could even call it self banking<p>* the solution seems to be to create ever larger banking behemoths (on the premise that they they can better manage risks) - as if we don't have enough examples (Lehman, Credit Suisse that this is not so). In fact this aggregation only commingles all sort of risks inside a gigantic opaque pool, makes the private-public dependency (TBTF) and all its perverse incentives even more entrenched, and ultimately creates the conditions for systemic failure<p>It is all so egregiously non-sensical and sub-optimal. People famously have the political systems that they deserve. In turn this perpetuates the banking systems that they deserve.
More centralization.<p>This just balloons up giants which are too big to fail.<p>The end result as always: More money printing.<p>The genie was let out of the bottle in 2008 and will not be put back:<p><a href="https://fred.stlouisfed.org/series/BOGMBASE" rel="nofollow">https://fred.stlouisfed.org/series/BOGMBASE</a>
This means the feds did decide to make an exception to the rule that bans banks that have more than 10% of nationwide deposits from acquiring another bank.<p>Also this is the second largest bank failure in US history.
The spoils go to…<p>“As a result of this transaction, JPMorgan Chase expects to:<p>Recognize an upfront, one-time, post-tax gain of approximately $2.6 billion, which does not reflect the approximately $2.0 billion dollars of post-tax restructuring costs anticipated over the next 18 months<p>[…]<p>The transaction is expected to be modestly EPS accretive and generate more than $500 million of incremental net income per year, not including the approximately $2.6 billion one-time post-tax gain or approximately $2.0 billion of post-tax restructuring costs expected over the course of 2023 and 2024.”<p><a href="https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank" rel="nofollow">https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...</a>
Seems like yet another example of a disaster that (might) have been avoided if congress, in 2018, hadn't rolled back pieces of Dodd-Frank. Before that, banks with > $50B had to take stronger precautions, but that limit was raised in 2018 to $250B. FRB had assets around $220B.
JPM has just released a press release with more details [0]<p>- Acquisition of the substantial majority of First Republic Bank’s assets, including approximately $173 billion of loans and approximately $30 billion of securities<p>- Assumption of approximately $92 billion of deposits, including $30 billion of large bank deposits, which will be repaid post-close or eliminated in consolidation<p>- FDIC will provide loss share agreements covering acquired single-family residential mortgage loans and commercial loans, as well as $50 billion of five-year, fixed-rate term financing<p>- JPMorgan Chase is not assuming First Republic’s corporate debt or preferred stock<p><a href="https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-substantial-majority-of-assets-and-assumes-certain-liabilities-of-first-republic-bank" rel="nofollow">https://www.jpmorganchase.com/ir/news/2023/jpmc-acquires-sub...</a>
RIP First Republic - I hope something of their customer service culture stays on. Unsure that's realistic, but maybe JPM could have kind of "private business banking" or something?<p>I was a customer there for ~12 years through multiple companies. Hope everyone I've worked with is okay.
As always, Matt Levine is ready with the numbers:<p><a href="https://www.bloomberg.com/opinion/articles/2023-04-26/first-republic-calls-in-a-favor" rel="nofollow">https://www.bloomberg.com/opinion/articles/2023-04-26/first-...</a><p><a href="https://archive.is/zJsPo" rel="nofollow">https://archive.is/zJsPo</a>
Does anyone have a clear picture of how this affects the employees and office footprint of FRB in the short and long term?<p>FRB had announced 25% layoffs last week. Is that still on the table? Does it go higher?<p>FRB is one of the largest leasers of commercial office space in SF at 150,000 sqft*. Is it expected that there will be significant reduction here? Or business as usual?<p>* <a href="https://www.crexi.com/insights/the-san-francisco-commercial-real-estate-market#:~:text=First%20Republic%20Bank%20150%2C000%20SF%2C" rel="nofollow">https://www.crexi.com/insights/the-san-francisco-commercial-...</a>
If anyone wanted to keep on top of these bank failures and be alerted when it happens, I built a very simple bank failure API/RSS feed from the data coming off of the FDIC website: <a href="https://benbrougher.tech/projects/bank-failures/" rel="nofollow">https://benbrougher.tech/projects/bank-failures/</a> It's nothing fancy, just a for fun project
One Bank to rule them all, One Bank to find them.<p>One Bank to bring them all, and in the darkness bind them.<p>Financial monopolization of the economy will not end well.
It's one of the dominoes, the attention of the market is going to turn to the next target now, and this will keep going until there's a general government/ market solution to the regional bank problem. The same people saving the bank are going to be the same people pushing the next bank to crisis.
Meaning JPM was also granted a new exemption to the 10% deposit cap in this acquisition? There are regulations[0] preventing banks with >=10% of US deposits to grow larger in size by acquiring other banks. Another win for TBTF theorists.<p>[0] <a href="https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform-should-spur-consolidation/" rel="nofollow">https://corpgov.law.harvard.edu/2018/05/29/regulatory-reform...</a>
so will it now be harder to get credit? What do the experts say?<p>One of the problems of the last bank run: the remaining banks were unwilling to grant any new loans - because they were afraid to take up any new risks. Is it possible that we will we see something similar?
> as of April 13, 2023, First Republic Bank had approximately $229.1 billion in total assets and $103.9 billion in total deposits<p>It seems a bit laughable that funny money accounting is allowed to be reported as facts. The loaf of bread I bought 4 weeks ago for $1 that is now stale and mouldy is neither worth $1 nor should be on my balance sheet as worth $1.
All these recent bank failures due to lack of oversight by the Fed. As we learned in 2008, you can’t just blame financial institutions because they’re going to take the easiest route every single time. The Fed is there for a reason. They completely failed to do their job with Powell leading that organization. They internally knew what they intended to do with their rate policy but did not do any stress tests for banks. I find that incredibly incompetent.<p>More to come.
This is the fault of of one person: Jerome Powell. That man has done more damage to the US and the world than any of the biggest calamities that come to mind (9/11, Katrina, Trump/Biden/Fauci depending on your politics).<p>The last 3 years of monetary policy have been the biggest destructive f-up ever imaginable. Printing endless money causing the collapse of the value of the dollar, causing serious inflation, to an insane raise in rates to try to undo the damage which (1) not only destroys the entire banking sector and tech industry, and (2) did absolutely nothing to fix the destruction of the USD.
So much for fixing the TBTF problem. More and more centralization is not the answer. In fact, decentralization is the answer, and letting poor money managers, investors, woke companies, cities, states, countries etc. go broke. The capital will get reallocated into the hands of more capable people and companies, as it should be.
> The FDIC and JPMorgan Chase Bank, National Association, are also entering into a loss-share transaction on single family ... The FDIC estimates that the cost to the Deposit Insurance Fund will be about $13 billion<p>So only estimated $13 billion will be printed.