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The Almighty Buck United States

First Republic Bank Becomes the Latest Bank To Be Rescued, This Time By Its Rivals (npr.org) 86

Posted by msmash from the how-about-that dept.
Some of the biggest banks in the U.S. are stepping in to save First Republic Bank. From a report: A group of 11 lenders including J.P.Morgan, Bank of America, Citigroup and Wells Fargo said they will deposit $30 billion in First Republic Bank in an effort to prop up the beleagured midsized lender. The rescue comes after confidence in smaller lenders cratered following the collapse of Silicon Valley Bank and Signature Bank in what has been an extraordinary week for U.S. lenders. "This action by America's largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities," the lenders said in their statement. "Regional, midsize and small banks are critical to the health and functioning of our financial system," the statement added.

California-based First Republic has experienced an exodus of depositors since the failures of those two banks, as many of its customers moved their money to larger rivals. That happened even after the lender said it had lined up $70 billion in new financing from both the Federal Reserve and the world's largest bank, J.P. Morgan Chase. First Republic also noted it was eligible to seek additional funding from the Fed if there were heightened demand for withdrawals. The bank has also said its balance sheet is sound and that depositors are safe, but investors have still worried they were vulnerable to a similar run on deposits as Silicon Valley Bank.
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First Republic Bank Becomes the Latest Bank To Be Rescued, This Time By Its Rivals More

First Republic Bank Becomes the Latest Bank To Be Rescued, This Time By Its Rivals

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  • Rumor driven bank run? (Score:5, Insightful)

    by backslashdot ( 95548 ) on Thursday March 16, 2023 @04:06PM (#63376451)

    Twitter/Reddit or the media can cause a bank run just by rumors. It can be self-fulfilling. In fact this bailout itself might do something like that.

    • Re:Rumor driven bank run? (Score:5, Informative)

      by Opportunist ( 166417 ) on Thursday March 16, 2023 @04:12PM (#63376465)

      Any bank rumored to be bankrupt is. No bank, not a single one, could survive a run. Not because they're in bad shape, but because that's how banks work. They don't sit on your savings account, they lend that money to companies and people to earn the interest. And that works pretty well until suddenly EVERYONE shows up at their door and wants their money back NOW.

      • If a real bank run happened, the average bank branch would probably be cleaned out within minutes to hours. I've read that the average branch doesn't have more than maybe 50K sitting in their vault. They only keep enough cash on hand to handle their average daily check cashing operations, which these days are probably very low volume with things like direct deposit and debit cards. People still cashing checks likely are those not served by bank accounts and are doing it at their corner check cashing spot/lo

        • Re:Rumor driven bank run? (Score:4, Informative)

          by Opportunist ( 166417 ) on Thursday March 16, 2023 @05:35PM (#63376671)

          While true, I am not talking about a branch. I'm talking about the whole bank. You can bring down BoA with a credible rumor of them not being solvent.

          There is usually very little actual cash in the average bank today. If you go and take a closer look at the fine print in your banking contract, you'll find that you have to pay a rather hefty withdrawal penalty in case you want to withdraw a serious amount of cash without announcement (usually around 100,000, i.e. nothing a normal person would want to withdraw in cash instantly on a whim, so most people don't even know that clause exists). This is to discourage something like this, because if two people try that at the same time, the branch is likely out of money and this may well quickly lead to the rumor that the bank is insolvent.

          Financial business is one where trust means a LOT. And I mean a L O T. Banks are very, very eager to never ever lose that trust.

          • Re: (Score:2)

            by Entrope ( 68843 )

            Show your work. Demonstrate your claim, please.

            The whole point of deposit insurance is to make rumors of bank insolvency implausible to most depositors, meaning they will not trigger a bank run. Other large banks have larger fractions of insured deposits than SVB and Signature Bank, and -- except for Citi -- also higher than First Republic: https://www.axios.com/2023/03/... [axios.com] . It is much harder to make a convincing rumor of insolvency for banks with lots of insured deposits.

            • That's assuming you can't conspire with a number of people to claim that they do. I mean look at the whole vaccine vs. anti-vaccine thing. You have a large enough percent of the population believing in some made up BS. It's quite possible for example, that some people with a large number of followers starts spreading a falsehood that a certain bank lacks insured deposits. How is said bank going to prove it false? They'll just be called liars. "Show us the insurance certificates!"

            • Banks around here are required by law to have a capital reserves of 8% of the outstanding obligations ... in theory. In practice, this only applies to non-secured loans. Mortgages for example only count with 50% of the outstanding loan, and loans towards the government don't count at all (of course...). And these reserves have to be bunkered in government bonds which are, in theory, liquid assets, in practice, though, if you really need to sell them right now because you need money now, be prepared to lose

    • Twitter/Reddit or the media can cause a bank run just by rumors. It can be self-fulfilling. In fact this bailout itself might do something like that.

      I saw this one.... "It's a Wonderful Life"... but wait, they didn't have Twitter _or_ Reddit back then!

    • Re: (Score:2)

      by necro81 ( 917438 )

      Twitter/Reddit or the media can cause a bank run just by rumors. It can be self-fulfilling

      The movie "Sneakers" spelled this out [youtu.be] back in 1992.

  • The devil is of course in the details. Why would a handful of mega banks decided to prop up a competitor when they would instead gobble up its assets out of bankruptcy.

    The surface reason is of course to stave off interventions by regulators who might balk more industry consolidation. On the other hand its unlike them do anything without some direct path to profits...

    • Re:Interesting (Score:4, Insightful)

      by e065c8515d206cb0e190 ( 1785896 ) on Thursday March 16, 2023 @04:12PM (#63376467)
      Because the world is not necessarily a zero sum game? Because if there are bank failures, it might hurt everybody and benefit nobody?

    • The devil is of course in the details. Why would a handful of mega banks decided to prop up a competitor

      So that the customers have enough time to withdraw all funds and put them in a mega-bank. :-)

      • Re: (Score:2)

        by DarkOx ( 621550 )

        Sure that's it. Let me lend 30k to the soon to be bankrupt restaurant down the road so they can make payroll this month and their assistant manager who rents the income property I own can make his $1200 payment this month - makes total sense :-)

        SK - just having some fun here, perfectly plausible there is some scheme around positioning themselves to have the pick of the banks best assets and customers when it does go pop..

        • Technically it's a pretty safe "loan", just sucks when it could make more interest doing anything else. These banks seen to have assets that would *eventually* mature to cover deposits, but they are too long term and trying to sell then to others would not work out due to the low rate of return promised when new bonds would have a better return in shorter time.

          Basically it's forgoing reasonable return to mitigate the chance of a collapse that will bring them down with it. Economy is in large part psycholo

    • The devil is of course in the details. Why would a handful of mega banks decided to prop up a competitor when they would instead gobble up its assets out of bankruptcy.

      The surface reason is of course to stave off interventions by regulators who might balk more industry consolidation. On the other hand its unlike them do anything without some direct path to profits...

      Because the FDIC is forcing them to bail out any depositor losses in the last two banks via a special assessment. Probably more profitable to loan failing competitors money that eventually gets paid back than to be forced to give away money by the government.

    • Parents are coming up the drive. Better clean up quick, before they start asking questions. It's not as if the shady dealings ever went away. It just that now the spotlight is on them and they do a little dance until the heat lets off, then go back to diddlin' each other. I agree that they're marshalling to head off further inquiry. I'm just kind of waiting to see them get yanked off the dock.

    • Re: (Score:2)

      by dryeo ( 100693 )

      Bank runs are contagious and can crush the economy.
      Reading about the panic about 110 years back, all the big banks worked together to keep a couple of banks solvent as the memories of the panics before were still fresh enough. They mostly deposited cash where needed, Federal government also deposited a million dollars as well. Of course back then when your bank went under, you could lose all your savings, money needed to do business, etc. Not good.

  • An insolvent bank ultimately needs new capital, not liquidity. Liquidity is a only a very short term way to keep them going, to give them time to raise capital. You could say that the other banks providing deposits is a sign of confidence that capital is coming, but they have people awake 24/7, they can run on the bank faster than you.

    The combination of supply shock and Powell's power trip aren't going to be over any time soon ... I don't expect private parties will be lining up to give them capital. That l

    • Re: (Score:2, Informative)

      by Anonymous Coward

      Sounds like they have capital, they just need liquidity because their depositors have been withdrawing more heavily than usual.

      • Exactly. AC speaks the truth. Aside for the fact that their depositors are not withdrawing that much, it's more the stock price that's taking a beating.

      • Moody's and Wedbush Securities seem to disagree.

        Why be forced to wait for the FDIC to open a bridge bank and then hope they will also declare First Republic systemic when you can just run? To be a good citizen? Hah, just run.

    • They have capital, they needed liquidity. Dummies bought long bonds which are underwater now after all these rate hikes inverting the yield curve.

      • Re: (Score:3)

        by DarkOx ( 621550 )

        Dummies bought long bonds which are underwater now after all these rate hikes inverting the yield curve.

        So what were they supposed to do? The FED has kept the prime rate at near zero for 15 years. QE has been running which help keep rates on commercial power down as well. Its easy to call them dumb but what should have been doing?

        • Re: (Score:2)

          by Ly4 ( 2353328 )

          Buy short-term bonds, which was a specific recommendation at the bank:

          That certainly played out at SVB. In late 2020, the firm's asset-liability committee received an internal recommendation to buy shorter-term bonds as more deposits flowed in, according to documents viewed by Bloomberg. That shift would reduce the risk of sizable losses if interest rates quickly rose. But it would have a cost: an estimated $18 million reduction in earnings, with a $36 million hit going forward from there.

          Executives balked.

        • Lobby the Fed to be more responsible?
          They should be planning ahead, not just reactionary.

          The Fed had no where to go with rates at 0 (except negative, which is terrible) if some future need arose. Why didn't they gradually tick rates up a little bit over the last decade to give them some wiggle room? Surely 0.125% a year for a few years and then stopping around 1% would not have halted the economy, but might have avoided people taking "free money" and doing things which were predicated on that being availabl

        • Buying doge coin.

    • By that metrics all banks are insolvent. Take any banks, if all depositors go at once, the bank is gone. First Republic doesn't need capital, they need liquidity to restore confidence, and that's exactly what's happening.

      • Re: (Score:1)

        by kellin ( 28417 )

        All banks *are* insolvent. They're only required to keep 10% on hand, and that requirement was wiped out by Trump during the pandemic. Biden never put the requirement back in place, and when a bunch of people demand money, suddenly the bank is screwed. This is exactly what happened to Washington Mutual in 2008 during the bailout / crisis, a demand on people freaking out and wanting their money caused WM to die. I still miss that bank.

      • Banks can, some might say should, have marked to market assets larger than their liabilities.

    • Re:Financing/deposits are not a rescue (Score:5, Informative)

      by DarkOx ( 621550 ) on Thursday March 16, 2023 @04:38PM (#63376521) Journal

      In the case of SVB though, and presumably First Republic here, though they are not insolvent they are illiquid.

      They had a bunch of their reserves in long dated bonds, but those bonds were at very low rates. They have those because well the FED held rates at near zero for 15 years so what else would we reasonably expect.

      The bonds themselves are 'good' the creditor (largely the UST) will pay at maturity. However the banks assumptions about being able to sell these bonds prior to maturity has been up-ended by the rapid rise in rates. Nobody wants to buy a 10 year treasury at 0.5% with 8 years left on it when you can get a 2 year notes that pays 3.8%.

      So these banks are stuck. Another institution that can inject enough liquidity could in fact get them out of these even profitably - though not as profitably as if they had better yielding reserves.

      The question I posted above and still want to know the real answer to, is why would they. Hard to think its just be 'kind' or hold off regulatory action.

    • > An insolvent bank ultimately needs new capital, not liquidity.

      Except the bank is not "insolvent." Their problem is literally a lack of liquidity. Insolvent means they can't pay their debts, but deposits are not debts are they? No, they are not. I'm sure you knew that too.

      Bank deposits are lent out or otherwise invested, and the bank primarily makes their money on the returns of those investments. At any given time, your bank does not have the cash on hand (aka, liquidity) to give every depositor the fu

      • Demand deposits for a bank are debt which can come due at any time.

      • Re: (Score:2)

        by ceoyoyo ( 59147 )

        Deposits are debts.

        Banks aren't insolvent because insolvency is an inability to pay your debts *at maturity*. Everybody who owns a house isn't insolvent because they don't have enough money in their wallet to pay back the mortgage.

        An accountant might say that a bank is "cash flow insolvent" if there's a run. That's the way you're using "lack of liquidity."

        • The bank can't call in the entire mortgage, the depositor can call in the entire deposit.

          Demand deposits are debt which is always at maturity but continually rolled over at the mercy of the depositor.

          • Re: (Score:2)

            by ceoyoyo ( 59147 )

            It's at maturity when the debt is called in. There's no point in calling all banks insolvent. Their business is to take on variable term debt and use it to buy longer term debt. There's risk, which is why things like deposit insurance and central bank support became a thing.

  • It'll be a great ride... until it isn't.

    Canada has a very strongly-regulated banking industry. We had zero [nber.org] financial institutions fail in the 2008 crisis.

    Maybe there's a lesson for others? Hahaha, I make myself laugh so much. The US will continue on the path dictated by greedy oligarchs to the detriment of everyone else.

    • Canada is a tiny drop in the bucket of the financial world. I'd bet that the biggest bank in the US us bigger than all the banks in Canada combined.

      • Re: (Score:2)

        by ceoyoyo ( 59147 )

        TD is slightly bigger than Goldman Sachs, and Royal is slightly smaller.

        That's pretty irrelevant though.

      • Re: (Score:2)

        by dskoll ( 99328 )

        Nope. TD is the fifth largest bank in North America, at about half the size of JPMorgan Chase. The top 5 banks in Canada combined are significantly larger than the largest US bank.

        Maybe next time do some research [wikipedia.org] before spouting off?

    • Trudeau created the start of a bank run when he declared emergency powers and froze protester's bank accounts about a year ago. He reversed course just in time.

      • Re: (Score:2)

        by dskoll ( 99328 )

        What a load of shite. Please post articles referring to this alleged "bank run" or retract.

        • You should really have googled that before going to insults. I'll let you do it.
          • To be accurate, when I say "he created the start of a bank run", and after looking again at my sources, it is stated that multiple banks experienced outages and issues as people were looking into the scope of the freeze and some withdrawing money preemptively. I didn't mean to imply there *was* an actual massive outflow of the deposits, but merely the early signs of a panic. Of course there was no *actual* bank run otherwise you'd have heard it in newspapers of record.

    • Don't laugh too much. You might have a little more exposure than you thought.

      https://www.forbes.com/sites/k... [forbes.com]

      "Canadaâ(TM)s Biggest Banks Are Spending Billions On M&A To Build Their Footprint In The U.S."

      • Re: (Score:2)

        by dskoll ( 99328 )

        Read that Forbes article. Canadian banks are flush with cash and they're using that to finance M&A rather than using debt.

  • An economist devoted an entire thesis to proving beyond doubt that loan money just appears on a computer screen. Nothing real about it. No one is missing anything. Contradicts the entire narrative of loans..

    • Re: (Score:2)

      by martinX ( 672498 )

      Everything works as long as the music keeps playing. It's when the music stops and everyone tries to claim a seat that they realise there's not enough to go around.

      • The government has two ways of printing money: running the money printer or creating debt. In theory, private debt regulates itself: the more economic activity the more "money" there is in circulation. In practice, the government tries to hide its money printing behind the appearance of debt. And instead of sky high inflation we have bank failures: rather than everyone taking a small hit, an unlucky few lose everything. Unless we bail them out...in which case everyone takes a small hit *and* there's chaos i

        • The level of taxes on the rich necessary to keep the economy stable against the forces of wealth accumulation are politically impossible. Debt and inflation are politically possible, but the rich have too many ways to avoid inflation, so things snowball.

          Government is caught between politically impossible and unstable, they pick unstable and hope there's a big war to save them when it stops working.

          • And the other way to balance the budget is to spend less...raise retirement ages...all the good stuff that leaves people just as mad as inflation but better off financially in the long run.

            • That does nothing to fix wealth accumulation. Land is a natural monopoly and rent snowballs wealth. Black plague and later migration set us free for a while, the shift from agricultural to service society, urbanization and population growth has brought it back.

  • https://notthebee.com/article/... [notthebee.com]

    Move along, nothing to see here.

  • China loans money to countries at usurious rates, and hold the nation's mines, ports or other infrastructure as collateral.

    Of course, the country can't pay the loan off, and whoops... there go their resources or ports.

    I see the same for these banks getting their hooks into a regional bank and one by one, the regional banks disappear.

    These big four banks are going to be what's left standing and will share in the largess of the FedNow (Central Bank Digital Currency) program.

    It will not be good to coalesce the

  • Hive of scum and villainy.

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