California’s Department of Financial Protection and Innovation said Monday that regulators had taken control of First Republic Bank, the third major U.S. bank to fail in two months. said in a statement: “To protect depositors, the institution is entering into a purchase and acquisition agreement with JPMorgan Chase, National Association, Columbus and Ohio to take over all deposits and assets of First Republic Bank. ”
The deal came after First Republic Bank failed to come up with a practical bailout, due to its loss of approximately $100 billion in deposits in the first quarter of the year, leading to a decline in its shares, as the bank’s stock price fell 43% at the end of Friday’s trading. On Wall Street, it hit $3.51 after pausing trading several times during the session due to wild swings, and the bank’s stock losses in the past week alone topped 90% . .
The deal averted a billion-dollar meltdown
Speaking to business website Sky News Arabia, Mazen Salhab, Chief Market Strategist at BDSwiss MENA, expects these measures will not guarantee such failures will not happen again, but at the same time he believes that they could currently succeed in alleviating the panic and avoiding a collapse of billions of dollars, since the “First Bank Republic” was the fourteenth largest American bank with eighty offices and more than 7,200 employees.
It is clear that governments have again intervened in the rescue of financial institutions in difficulty, whether in America or in Switzerland, which raises important questions about the future of the independence of the banking sector and about the mechanisms of government intervention in advanced economies, which have always been against such intervention in capitalist systems, according to Salhab.
Decline in confidence in the ability of small and medium banks to cope with risks
Salhab stresses that the most important point is that such acquisitions or transactions will make JP Morgan and the rest of the big American banks more financially massive and will control and monopolize the banking business in America, as confidence gradually diminishes in the ability of small and medium enterprises. banks in the face of risks, which is obvious The rise in interest rates is not the real reason as long as it is linked to poor risk management and exposure to risky assets by the management of these banks .
And the chief market strategist at “BDSwiss MENA” believes that the US Federal Reserve will now be under intense pressure from US lawmakers, especially regarding bank stress tests and their feasibility, after the bankruptcy. of several American banks, while these failures increase reigniting the controversy over the ability of the American Federal Reserve to take the right measures in this matter, at the right time… It is illogical that such failures occur in the near future and for banks which, a few months ago, seemed stable.
For his part, the economist and banker Ali Hamoudi explains, in his interview with “Sky News Arabia Economy”, that “American regulators were working on Sunday evening to resolve the First Republic Bank crisis after the expiry of the deadline yesterday for the filing of final offers to acquire the troubled bank, where the authorities were Regulators ask follow-up questions to at least some of the bidders as they compare the banks’ offers, if no agreement is reached, the authorities will then have the option of regaining ownership of the Bank.
Of course, it all started with customers worried about the financial repercussions of the Silicon Valley bank, so they suddenly withdrew money from their accounts, leading to its collapse, which also raised concerns about the situation of small American banks, according to Hamoudi. .
Is the American financial system under threat on a global scale?
Hamoudi raises the most important question…has the US financial system become a global threat?, answering the question himself saying, “It is unlikely that the ongoing unrest at (First Republic Bank) threaten the banking system as a whole because the risk of collapse is still limited to a specific group of banks.” which failed to adequately protect its balance sheets, Silicon Valley and now the First Republic have been an extreme case in how they have managed their risks.
Hamoudi, an economist and banker, considered that this crisis is linked to certain banks and not to a broader banking crisis, stressing that “despite the size of these banks, they are not the place where most people manage their money. , and thus the acquisition of “JP Morgan” First Republic would be another positive factor associated with smaller banks to prevent another round of deposit withdrawals.
A global decline of the bank lending system
For his part, Ashraf Al-Aidi, CEO of “Intermarket Strategy”, believes that the renewed problems of the “First Republic” bank will not affect the American banking sector in the short term, because the markets have come to consider the ” First Republic” “It’s a positive thing”, he added, adding that the banks have also not intervened to help the banks, as has happened with others, because they do not want to get involved in the future of the bank and to take responsibility for loans.
And Al-Aidi continues: “But the most important question here is… what will happen to the lending system, the liquidity of bank lending, and will there be an overall decline in bank lending? and how will this affect the american economy will the lending system be the last detail that will actually lead to the economic recession in the united states american?.. i think that is what will happen go long term.
First Republic Bank was ranked the fourteenth-largest bank in the United States by asset size in 2022 because, with assets of $233 billion at the end of March, it is the second-largest bank to fail in the history of the United States – with the exception of investment banks such as Lehman Brothers – after the bankruptcy of Washington Mutual in 2008.
The deal to buy First Republic Bank comes less than two months after Silicon Valley and Signature banks collapsed amid a wave of deposit flight from US banks, prompting the US central bank to intervene with measures emergency to maintain market stability.
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