FDIC Auctions First Republic Bank Amid Banking Crisis
Federal Reserve reports blames bank executives and regulators for last month’s Silicon Valley Bank and Signature Bank troubles.
The last time we checked on the status of the recent banking crisis, a mixture of bank sales and federal assistance staved off an escalation of the troubles.
Now Federal regulators are holding an auction for First Republic.
Federal regulators are holding an auction for ailing regional bank First Republic, a person familiar with the matter tells CNN.
Final bids are due for First Republic Bank at 4 p.m. ET on Sunday, the source said.
The Federal Deposit Insurance Corporation [FDIC], the independent government agency that insures deposits for bank customers, is running the auction.
. . . . A decision on a First Republic buyer would seem likely to be announced later Sunday evening. During times of market stress, government officials typically try to announce solutions before global markets start trading. Some Asian markets are scheduled to begin trading at 8 p.m. ET Sunday.
Shares of First Republic (FRC) plunged from $122.50 on March 1 to around $3 a share as of Friday on expectations that the FDIC would step in by end of day and take control of the San Francisco-based bank, its deposits and assets. But that never happened.
The FDIC had already done so with two other similar sized banks just last month — Silicon Valley Bank and Signature Bank — when runs on those banks by their customers left the lenders unable to cover customers’ demands for withdrawals.
At the time of this report, several large banking institutions had put in a bid.
PNC Financial Services Group (PNC.N) and JPMorgan Chase & Co (JPM.N) were among banks set to submit final bids for First Republic Bank (FRC.N) by midday Sunday in an auction being run by U.S. regulators, sources familiar with the matter said.
The Federal Deposit Insurance Corp is expected to announce a deal on Sunday night before Asian markets open, with the regulator likely to say at the same time that it had seized the lender, three sources previously told Reuters.
…Citizens Financial Group Inc (CFG.N) was another bidder vying for the bank, according to sources familiar with the matter on Saturday.
FDIC was not immediately available for comment. Guggenheim, FRC and the banks declined to comment.
There is a new report on Silicon Valley Bank, the first bank that was poised for collapse last month, blaming the troubles on “a combination of extremely poor bank management, weakened regulations, and lax government supervision.”
The report takes a critical look at what the Fed missed as Silicon Valley Bank grew quickly in size in the years leading up to its collapse. The report also points out underlying cultural issues at the Fed, where supervisors were unwilling to be hard on bank management when they saw growing problems.
The report, authored by Federal Reserve staff and Michael Barr, the Fed’s vice chair for supervision, comes amid ongoing concerns about the strength of regional banks. Earlier this week, First Republic Bank’s stock tumbled after investors were spooked by the bank’s disclosure on Monday that depositors withdrew more than $100 billion during last month’s crisis, raising concerns about First Republic’s stability.
Silicon Valley Bank was seized by regulators on March 10 after customers withdrew billions of deposits within a matter of hours in a classic bank run, which was hastened by the swiftness of mobile banking. The new report from the Fed singled out the central bank for criticism, saying the institution “did not appreciate the seriousness of critical deficiencies in the firm’s governance, liquidity, and interest rate risk management.”
Finally, the FDIC also concluded the collapse of Signature Bank, the third troubled institution was due to “poor management.”
Bank management “did not always heed FDIC examiner concerns, and was not always responsive or timely in addressing FDIC supervisory recommendations,” the report said.
Contagion effects from Silicon Valley Bank’s failure and Silvergate Bank’s self-liquidation, which occurred just days before Signature Bank was forced to close, helped ignite the run on deposits, the FDIC report stated. But the FDIC said that was not the root cause of Signature Bank’s failures.
In particular, bank management did not fully understand the risks associated with accepting crypto deposits, which comprised more than 20% of its total deposits, the FDIC report said.
“When that industry started to turn and interest rates started to rise, those deposits started leaving the bank,” Marshall Gentry, chief risk officer at the FDIC, said on a call with reporters Friday. “Even though they were crypto cash deposits, it was a traditional kind of bank run.”
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Yea. Of course the buyer won’t be getting the non performing or risky assets nor the assets underwater due to interest rate hikes; those go on the govt books.
Consumer credit not looking especially good nor are commercial real estate loans with occupancy way down. Lots of layoffs and more coming. IMO we looking at an undeniable moderate to severe recession beginning later this year lasting the usual 15-20 months. That’s best case without new crisis arising or new jackass decisions from DC, just baking in the current landscape and expected consequences.
These banks didn’t die because they had non-performing or risky assets. They couldn’t save themselves from a run because those assets were currently underwater, which is not normally a problem unless you’re stuck in a short-term liquidity crisis and have to sell immediately, at a substantial loss. Had these banks been able to hold on until maturity, which wouldn’t have been long as most of their assets would have been in short-term Treasuries or corporate debt, they would have been paid in full and been able to fulfill their depositor’s withdrawal demands.
I didn’t claim they ‘died’ b/c they had non performing assets. Nevertheless the good assets will be sold while the less good assets will go onto the govt books. Just as in the aftermath of the last crisis the profits remain private while the losses are socialized.
The Banks failing have a common theme. They lent long at low rates and did so by borrowing short making their portfolio very exposed to changing interest rates. When the Fed began raising rates they maintained course. Then depositors there and elsewhere took a look at the still low rates for demand deposit accounts and the far more attractive rates and elsewhere in money market and T-bills and changed horses.
It was poor risk management that did them in. They failed to adequately take into account folks shifting out their deposits from the low/no rate offered in those bank accounts to much higher yielding options elsewhere.
Just FYI the FDIC was offering assistance to the par value of the govt bonds not market value so even with that they couldn’t get it done. IMO every director and every SR banking officer/exec should be personally liable for any bank failure. No bankruptcy protection either; sell off their homes, cars, watches, their wife’s jewelry all of it. Do that and a whole lot more prudent banking will emerge.
It is not just the Fed at fault. Treasury Secretary Yellen seems to have been MIA most of the time, perhaps hanging out with Biden in his basement.
We should not be having these financial issues so soon after the financial panic of 2007-2009, with the one before that in 1929-1932. Incompetent fiscal and financial management and regulation by government looks to be the cause. Academics, people with little business experience and diversity hires running government is nuts. If this gets worse, Biden may go down as the “Hoover” of the 21st century.
Finally, the Biden administration has put through a gigantic amount of wasteful spending and regulations, a lot of which will harm productivity. This will lead to worse GDP growth and higher inflation than we otherwise would have had for years to come.
IMO the primary cause was near zero fed funds rate maintained for 15 years. That cheap money era ushered in lots of risk taking as ventures that wouldn’t be financed at higher rates got access to capital. That’s the same story in consumer world as well. $80K for damn pick up truck? Nah. Way over valued real estate both commercial and residential. Coming soon the fallout as banks holding the bad loans look for a way out; foreclosure rates are ticking up. This will be another real estate induced problem as one component. Boondoggle govt spending financing failure has left little wriggle room to respond.
Too much easy money aka abundance creates conditions where everyone forgets scarcity, especially when business and consumers are routinely bailed out bad decisions or at least expected to be. Student loans anyone? End of inflated Covid era handouts is also gone take its toll.
The Fed has a choice. Raise rates once or twice more then keep rates where they are to force bad money and mal investment out or start lowering rates again and revert to QE to provide a boost. That’s the monetary side. The Biden admin isn’t willing to even meet with HoR GoP on debt ceiling so the Fiscal side is is working against the goal of the Fed to reduce money supply.
That’s the real tension. Savers and true long term investors who like higher interest rates v speculators who want access to the sugar high of cheap money. So much easier to make $ on Wall St in a cheap money era so you can guess which way the Wall St lobby will push. Not to mention it forces savers out of low/no yield safe and secure boring bonds / CD into the equity market to just get ahead of even 3% inflation.
We had the boom cycle from ’08 till now relatively speaking. Now comes the bust cycle. Sure as night follows day this pattern always repeats when cheap money becomes norm. As soon as the easy money goes away so does the economic boom built around exploiting cheap money era in clever ways v realistic and prudent investment policies. The problem is the big fish who most profited have a much bigger megaphone to bring it back.
I have invested a great deal in real estate over the last 35 years and I see this over and over. Really don’t need anymore but there will be deals to be had in a year or so and I am sitting on cash in my retirement. A difference this time around is the presence of so much crypto ‘currency’. No thanks…
After Teh Worst Crash Ever, in the highly regulated, and orchestrated finance industry, especially mortgates, we have a bunch of more, bigger failures after the more meddlesomee Dodd-Frank, and a decade and a half’s more massive meddling by the fed, Fannie, Freddy, and the rest.
It’s like the regulating n orchestrating makes more crashes, with recoveries from the folks who get crashed upon.
Isn’t this special, Congresswoman Lois Frankel ( D-Fl) recently sold ( before collaspe) shares of First Republic only to buy JP Morgan not long after.