After the bankruptcy of First Republic Bank, the United States hopes to avoid a snowball effect

2023-05-01 21:05:08

In front of a branch of the First Republic Bank, in San Francisco (California), on May 1, 2023. JUSTIN SULLIVAN / AFP

And three. After the bankruptcy, at the beginning of March, of Silicon Valley Bank (SVB), the venture capital bank in San Francisco (California), that of Signature, a New York establishment specializing in real estate which had played with cryptocurrencies, a third major financial firm defaulted over the weekend, First Republic Bank.

This Californian company was put on Monday 1^is May, under receivership from the FDIC (Federal Deposit Insurance Corp), the federal body responsible for guaranteeing bank deposits, and immediately taken over by the first American bank, JP Morgan, headed by Wall Street veteran Jamie Dimon. The action JP Morgan gained 2.5% in the middle of the day while Wall Street, reassured, was slightly in the green. The FDIC will lose some 13 billion dollars (11.8 billion euros) in the case, but the slate has been reduced due to the takeover by JP Morgan, which will pay 10.6 billion dollars for its acquisition.

For weeks, no one has come forward to buy the failing bank, which has forced the federal state to intervene. “The whole world knew First Republic was for sale, and no one bought itsaid Jamie Dimon on Monday. Our government invited us and others to intervene, and we did. » The shareholders of First Republic Bank, which was still worth almost 50 billion euros in February, have nothing left.

Read also: Article reserved for our subscribers In the United States, the First Republic Bank is in turn on the brink

The crisis accelerated in late April when First Republic revealed during its quarterly results presentation that its customers withdrew more than $100 billion in deposits in March, leaving only $75 billion in its coffers. The ingredients for bankruptcy were there, despite an initial rescue plan which had led the major local banks, already led by JP Morgan, to lend the institution some 30 billion dollars from mid-March ( JP Morgan will also reimburse its ten colleagues).

Three Causes

The current banking crisis can be explained by three phenomena: the rise in interest rates decided by the American Federal Reserve (Fed, central bank), which increased the cost of short-term money from zero to 5% in a year. This policy has led to a decline in assets reaching 15% of banks’ bond portfolios – when rates rise, bond prices fall to adjust and offer the same return as the market – and an increase in their costs, depositors demanding with the rise in rates of higher short-term remuneration. In short, colossal losses.

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