The Silicon Valley Bank (SVB) crash has put the US banking system under stress possibly not seen since 2008, when the housing bubble burst. And while the Federal Reserve, Treasury Department, and FDIC have taken steps to ensure customer access to their deposits, the fear of a “contagion effect” has not entirely disappeared. In fact, much of the attention now points to the First Republic Bank.
Its action has fallen more than 60% this Monday, despite having received 70,000 million dollars to reinforce its liquidity, in order to avoid a new bank run. Which clearly speaks of the contagion effect caused by the excesses that have led to the liquidation of SVB and Signature Bank in the last few hours.
The First Republic Bank stock market crash is not an isolated event in the US banking industry. In fact, the main regional banks in the country they are suffering the blows of the Silicon Valley Bank fiasco in the markets.
Western Alliance Bancorpfor example, has fallen nearly 53% so far this day on the New York Stock Exchange, while the stock of keycorp registers a drop of more than 28%. On the NASDAQ, meanwhile, PacWest Bancorp it has plummeted almost 46%.
What is truly striking about this situation is that the sharp fall in the price of the shares of US banks occurs even after the presentation of the Term Bank Financing Program. It was announced by the Federal Reserve, the Treasury Department and the FDIC, to protect financial institutions affected by the SVB case.
First Republic Bank bears the brunt after SVB collapse
Although the collapse of First Republic Bank in the stock market is attributable to the contagion effect suffered by all US banks, the fear of another bank run seems to be especially strong with said entity. Because? Because just like Silicon Valley Bank, most of its clients’ deposits are not insured.
According to regulatory documents filed at the end of February, the bank closed 2022 with deposits of more than $176 billion. Of which $119,500 million —that is, 68%— were not insured because they were accounts that exceeded the $250,000 ceiling set by the FDIC.
With the events that occurred last week at SVB, First Republic Bank notified its customers on Friday that had a very strong liquidity position. Despite this, yesterday, Sunday, he reported that he received $70 billion of “unused liquidity” from the Federal Reserve and JP Morgan Chase. It is worth mentioning that said amount does not include the sum to which the bank could be eligible through the Term Bank Financing Program that we mentioned previously.
Although the injection of liquidity did not prevent the tremendous fall in the price of the First Republic Bank share, which had already lost 15% of its value last Friday, yes it would be enough to avoid a bank run like the one at SVB. It is true that today nothing seems to be set in stone in the American banking system. However, the entity would supposedly be prepared to face massive withdrawals from its clients in short periods of time. We will be attentive to the news.