The collapse of the First Republic Bank and the Institute towards liquidation: “There is no longer time for a rescue”

The collapse of the First Republic Bank and the Institute towards liquidation: “There is no longer time for a rescue”

According to the American media, the Banking Supervision Authority is about to put First Republic Bank into compulsory administrative liquidation. Its shares ended the week at new lows after the stress bank reported a $100 billion drop in customer deposits on Monday, worse than expected. The stock was paused by the volatility before closing down 43% at about $3.50 a share. It continued falling in after hours trading on Friday. Over the year, First Republic shares are down about 97%. Its market value shrank to $642.33 million.

What happens

The American authority believes that the bank’s financial conditions have deteriorated. And that there is no time to find a buyer in the private sector. If the San Francisco-based bank goes into liquidation, it will be the third US bank to collapse since March. First Republic deposits lost more than $100 billion in the first quarter of the year. CNN He writes The decisive factor in the bank’s crisis was its “similarity” to the Silicon Valley bank. which filed for bankruptcy in March. Investors pointed out the similarities to the failed and doomed bank which led to a virtual rush on depositors’ banks. Patricia McCoy, a professor of law in Boston, explained that the wealthier clients are those who move deposits faster if rumors of possible banking difficulties circulate. “They know they have other options and they have mechanisms to move money quickly,” McCoy explains.

fluctuating deposits

A ‘fluctuating’ depositor base could get a bank in trouble and pose a risk to investigators. Especially when the lender is medium sized. On the other hand, large banks such as JpMorgan Chase have diversified their depositor base as much as possible. Try to include “normal” people who aren’t tempted to close accounts because of rumours. Meanwhile, the Fed yesterday acknowledged oversight errors and insufficient regulation in the SVB case, the most serious case since 2008. The Fed has pledged to tighten controls on mid-sized banks. Thus sending a signal to an industry still under stress and accelerating the difficulties of the FRB. A report by Vice President Michael S. Bar on institute errors. While a second Fed Deposit Insurance Report on Fed Oversight of Signature Bank, which failed in a panic following Svb.

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Why do american banks fail

According to the document, the bank grew rapidly and the managers did not notice the obvious problems. Like the 31 warnings, which dealt with issues from liquidity to technology: a number three times that of a credit institution of the same size. Of the four reasons identified in the document, three are related to the Fed, and relate to oversight deficiencies. Barr also says the errors were prompted by legislative changes introduced under Trump. This led to the easing of controls on medium-sized banks. By reducing security standards and promoting a less assertive approach to controls. Among the measures to be implemented in the controls, Bar put in place restoring rules for credit institutions with more than 100 billion assets. As well as reviewing guarantees on accounts over $250,000. The report also condemns the Federal Reserve’s overly bureaucratic structure and weak oversight by the board itself.

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