The recent collapse of First Republic Bank has sparked concerns about the stability of the U.S. banking system and its impact on the broader economy. With nearly $230 billion in assets, the bank’s failure marks the second-largest bank collapse in the nation’s history, highlighting vulnerabilities in the banking industry. Moreover, U.S. banks are facing unrealized losses of up to $1.7 trillion due to economic uncertainty. The commercial real estate industry poses a significant risk to regional banks, with small and regional banks accounting for 80 percent of the $3.1 trillion in commercial mortgages. As remote work gains popularity, office buildings have lost value, leading to an increased likelihood of defaults. Market selloffs and bank runs could further threaten the stability of the U.S. banking system, as evidenced by the 2.4 percent dip in the exchange-traded fund for regional banks such as First Republic. Meanwhile, JPMorgan’s stock rose 2.3 percent on Monday.
Category Archives: Economy
First Republic Bank Reports $100B in Deposits Pulled During Crisis as Large Banks Step in to Save the Day
Depositors at First Republic Bank pulled more than $100 billion in deposits out of the bank during last month’s crisis, according to the bank’s first quarter results. Fears swirled that it could be the third bank to fail in the wake of the collapse of Silicon Valley Bank and Signature Bank. However, a group of large banks stepped in to save the day by depositing $30 billion in uninsured deposits in First Republic. The bank’s profits fell 33% from a year earlier and revenues were down 13%, signaling the impact of the crisis. Nevertheless, with the help of other large banks, First Republic was able to prevent further damage and look to the future of the banking industry in the midst of uncertain times.
According to David Doyle, head of North America economics at Macquarie, the US economy is headed toward a more severe downturn than the Federal Reserve is predicting. Inflation is too high for investors to rely on the Fed’s monetary policy to support the economy and markets, which weakens the Fed’s ability to implement a “Fed put”. Despite recent market rallies, Doyle warns of an impending recession for the US economy, which he predicts will be slightly more severe than what the Fed and the market are forecasting. Furthermore, the central bank won’t bail out stocks during the upcoming recession. The Fed has raised interest rates to tame inflation, which had run at four-decade highs before cooling in recent months. The aggressive rate hikes are likely to drag on the economy, and the central bank’s own policymakers have acknowledged the risk of a “mild recession”.
The U.S. Money Supply has seen an unprecedented decline for the first time in 90 years, signaling possible trouble for Wall Street and investors. According to historic M2 and U.S. inflation rate data from the Federal Reserve Bank of St. Louis and the U.S. Census Bureau, this is only the fifth decline in M2 money supply since 1870. It represents a 4.1% decline, which is the second-steepest since the Great Depression. The previous four instances of M2 contraction led to three depressions and one panic, accompanied by increased unemployment rates. The decline in M2 money supply increases the likelihood that a U.S. recession is taking shape in the near future. Although the stock market doesn’t necessarily mirror the ups and downs of the economy, no bear market has bottomed out before an official recession was declared by the National Bureau of Economic Research. Furthermore, data from Bank of America Research shows that two-thirds of the peak-to-trough drawdowns in the S&P 500 since 1929 have occurred during a recession. Other factors contributing to the possible recession include the minutes of the Federal Open Market Committee’s March meeting, which notes a mild recession is expected later this year, and the Federal Reserve Bank of New York’s recession probability indicator, which forecasts a 57.77% chance of a recession over the next 12 months.