First Republic Collapse: Is The Banking Crisis Getting Worse?

Is the banking crisis back Last week First Republic Bank revealed That it had lost over 40 percent of its Deposits in q1 sending its stock Tumbling and likely causing more deposit Flight Over the weekend First Republic Bank was Seized by U.S regulators and sold to JP Morgan making it the third U.S Bank to Go down in less than two months the Trillions of dollars of unrealized Losses and slow trickle of deposits into High yield assets has led to speculation That it's only a matter of time before More Banks go under that's why today I'm Going to explain why so many banks are Failing examine why First Republic went Bankrupt reveal whether the banking Crisis really has returned and tell you What it could all mean Let's start with a quick recap of the Banking crisis if you watched our video About Silicon Valley Bank or svb you'll Recall that it was seized by Regulators On Friday the 10th of March this Happened because the bank saw 42 billion Dollars of withdrawals the day before And Regulators knew it couldn't honor Anymore You'll also recall that the actual cause Of svb's collapse was a massive mismatch Between its assets and its liabilities In this case its customer deposits in Case you didn't know the money in your

Bank account technically isn't there It's all been lent out or invested by Your bank so that it can make money Believe it or not but the bank is only Obligated to keep a small percentage of Your money on hand in case you need to Withdraw it this is called fractional Reserve Banking and it works so long as Everyone doesn't rush to withdraw their Money at the same time Obviously this involves a lot of trust If you think about it the only reason Why people rush to withdraw their money From a bank is because they don't trust That the bank can honor withdrawals for Whatever reason as such You could argue That the banking crisis we're seeing is Not so much a crisis related to Economics but a crisis related to trust Even so economics does play an important Role and this is certainly the case with The current banking crisis as I Mentioned in the introduction U.S banks Have roughly 1.7 trillion dollars of Unrealized losses on their balance Sheets logically this has led to Concerns about their ability to meet Withdrawals the reason why banks have Such large unrealized losses is because The FED has been raising interest rates Banks are required to invest customer Deposits in safe assets such as U.S Government debt AKA U.S bonds Ironically U.S bonds saw their worst

Year in centuries in 2022 due to the Fed's rate hikes again this is fine so Long as not everyone rushes to withdraw Their money at the same time that's Because everyone rushing to withdraw Means that banks are forced to sell Their assets to honor those withdrawals This would turn unrealized losses into Realized losses and potentially bankrupt The bank if you watched our video about The U.S banks that are at risk of going Under you'll recall that unrealized Losses are only half of the risk Equation the other half is how many Uninsured deposits a bank has in other Words how many of their customers have Account balances larger than the insured Limit of 250 000 case in point svb had The largest number of uninsured deposits As a percentage of its total deposits Besides the mega Banks Signature Bank Was in second place and was also seized By Regulators on the weekend of the 10th Of March can you guess which bank was in Third place That's right First Republic For those unfamiliar First Republic is Or rather was a Regional Bank based in San Francisco California like svb First Republic catered to high net worth Clients across the United States Most of this catering came in the form Of mortgage loans which made up almost 80 percent of its more than 200 billion

Dollars in Assets in 2022. not Surprisingly fears over First Republic Began immediately after svb went down This is simply because investors could See that first Republic had a similar Risk profile to its peers in its q1's Earnings report the bank specified that Customers started withdrawing their cash On that same Friday the 10th of March On Sunday the 12th of March First Republic announced that the fed the Federal Home Loan Bank and JP Morgan Had Collectively pledged to provide it with 70 billion dollars of liquidity to keep It afloat the announcement also noted That the bank had access to the fed's New btfp facility For context the bank term funding Program or btfp was set up by the FED That same Sunday the 12th of March the Btfp makes it possible for U.S banks to Borrow against their assets as if there Were no unrealized losses this is Because assets like U.S Bonds mature at Their full value topic for another time Now although first Republic's Announcement quelled fears that the bank Would go down it didn't take long for Everyone to realize that the bank Couldn't tap the fed's btfp facility to The same extent as the other Banks this Is because most of its assets were Regular mortgages which couldn't be used As collateral

It appears that withdrawals continued Until Thursday the 16th of March when Wall Street's biggest banks deposited 30 Billion dollars into First Republic The bank's q1 earnings specified that Quote at that time daily deposit Outflows had slowed considerably Suggesting that this managed to stop the Deposit flight While first Republic's q1 earnings Claimed that everything was fine after That the headlines suggested otherwise On the 26th of March Bloomberg reported That the Fed was working with Regulators To expand the btfp facility so that Banks namely First Republic could use Other kinds of assets as collateral for Loans this would have been an Unprecedented move because it would have Been definitive proof that Regulators Were bending the rules to protect the Assets of the Rich and Powerful Fortunately or unfortunately the btfp Was never expanded but the fact that it Was even discussed is bad enough in any Case on Monday the 24th of April First Republic published its q1 earnings Report this revealed that its total Deposits had fallen by 41 to 104 billion Dollars a figure that included the 30 Billion liquidity injection this came as A shock to investors who were expecting The bank's total deposits to be closer To 145 billion for reference investors

Don't mind bad news so long as it's Roughly within expectations this is why The huge discrepancy between expected And actual deposits caused First Republic stock to implode this in turn Resurrected the speculation that the Bank would soon face the same fate as Svb and signature First Republic wasn't going down without A fight however on Tuesday the 25th of April Bloomberg reported that the bank Was considering selling 50 to 100 Billion dollars of its assets which You'll recall are primarily mortgages The unnamed Source also said that the Bank was planning on raising additional Capital on Wednesday the 26th of April CNBC reported that first Republic was Essentially threatening big Banks to Bail it out or else quote purchase bonds From First Republic at above Market Rates for a total loss of a few billion Dollars or face roughly 30 billion Dollars in Federal Deposit Insurance Corp fees when First Republic fails at The same time BTC began to rally on the Belief that the FED would be forced to Expand its balance sheet to bail out First Republic depositors the way that It did with svb and signature the fact That this kind of bailout didn't occur Could actually be why BTC crashed Earlier this week more on that later Now on Thursday the 27th of April

Bloomberg reported that the situation Had escalated to quote a game of chicken Between the U.S government and the Lender's largest Rivals put simply U.S Regulators were waiting on the sidelines To see if First Republic could convince The mega Banks to give it money again on Friday the 28th of April The Regulators Had gotten tired of waiting and According to Reuters began holding quote Urgent talks with First Republic and its Former saviors by this point it had Become clear that the bank was going to Be seized by U.S regulators and its Stock somehow managed to crash even more Now I'm not sure who needs to hear it But just because something is down 90 Percent doesn't mean it can't go down Another 90 percent Regardless on Saturday the 29th of April Fox News reported that first Republic Would be seized by the FDIC on Sunday The 30th of April the seizure was Confirmed and First Republic was Subsequently sold to J.P Morgan being Sold to JP Morgan meant that there was No need for a Fed bailout as it been the Case with svb and signature on that note If you watched our video about the Hearings following the banking crisis You might recall that the FDIC had Actually received offers from two Regional Banks to buy svb on the weekend It went down the FDIC refused these

Deals for unspecified reasons which is Interesting to say the least This relates to the terms of the First Republic sale which are equally Interesting the FDIC claims that there Was a quote competitive bidding process For First Republic over the weekend JP Morgan won and acquired 173 billion Dollars of first Republic's loans and 30 Billion dollars of its Securities JP Morgan also assumed all of first Republic's deposits which had fallen to 92 billion prior to its collapse this Figure again includes the 30 billion Dollars that JP Morgan and other Wall Street Banks had injected according to CNBC quote large deposits will be repaid Or eliminated in consolidation Finally the FDIC will share any losses On first Republic's underwater loans With JP Morgan according to the BBC the FDIC Insurance Fund will lose about 13 Billion dollars in this deal that Amounts to almost 10 percent of the Money in the fund which is meant to Backstop all insured deposits in the United States to put things into Perspective the fdic's Insurance Fund Would only be enough to cover around 1.3 Percent of all insured deposits in the United States in the event of a Full-scale banking crisis the catch is That this isn't the only money the Government can use to bail out the banks

They could use your money too more about Bank bail-ins using the link in the Description Now this begs the question of whether we Are about to see a full-scale banking Crisis or whether the collapse of First Republic has marked the end of this Madness the answer ultimately depends on Whether there are any other Banks which Have similar risk profiles to svb Signature and First Republic as I hinted Earlier many of the mega banks have Comparable levels of unrealized losses And uninsured deposits as a percentage Of their assets and liabilities The thing is that these banks are Considered systemically important Meaning they're basically backed by the Fed and are very unlikely to fail this Is why deposits from small and Medium-sized banks have continued to Migrate to these big Banks now in theory Small and medium-sized Banks could Follow in the footsteps of First Republic if these outflows continue and They break under their unrealized losses Primarily on commercial real estate Loans In practice however outflows from most Small and medium-sized Banks seem to Have slowed significantly and for many Their deposits have started increasing Again This could mean that first Republic was

The last bank to fail if there were any Others we'd have heard about them by now This is a fascinating possibility Because everyone was expecting that Small and medium-sized Banks would start Failing one by one as deposits were Withdrawn and unrealized losses took Them down This narrative was being pushed by all Kinds of media and I must admit that I Participated in the pushing in my Defense The Narrative makes a lot of Sense especially when you consider the Possibility that the FED wants to Consolidate the banking sector in Preparation for a central bank digital Currency or cbdc It also makes sense when you consider That all the shares in the FED are owned By the mega Banks now consider this in The next few days all of first Republic's Bank branches will have been Rebranded to JP Morgan call me crazy but I think this is an outcome that Megabanks would love to see for every Small and medium-sized Bank in the United States and it's one they would Encourage if they could This means the better question to ask Might be why we're not seeing the Banking crisis that should be occurring Given the circumstances interest rates On deposits are low unrealized losses Are high and there are lots of uninsured

Deposits by all accounts there should be More deposit outflows The answer seems to be something that's Been completely ignored and that's the Relationship that small and medium-sized Banks have with their depositors this Relationship makes it easier for Depositors to trust that their Banks Won't go under despite the circumstances Remember what I said trust is key more Importantly depositors at small and Medium-sized banks are probably aware That they won't ever get the same Service from the big Banks you will Never see big Banks offering extensive Services to so-called high-risk clients Which work in industries that go against Whatever political agenda is in play If you watched our video about Signature Bank you'll know that servicing these Underbanked clients is the bread and Butter of small and medium-sized Banks They often have a vested interest in Making sure their clients succeed the Result is that their clients will never Leave besides where else could they Really go This is why I don't think it's a Coincidence that Apple announced its High yield savings account with Wells Fargo soon after it was discovered that Deposits from small and medium-sized Banks were stickier than expected I Believe the big banks are trying their

Best to unstick these deposits I don't Think it'll work this brings me to the Big question and that's what this Banking crisis or a lack thereof could Mean for the markets if the banking Crisis continues recent events have Shown us that there are two possible Outcomes the first is a de facto bailout By the fed and the second is an Acquisition by a mega Bank as we've seen A de facto fed bailout results in a Market rally this makes sense Considering that the money on the fed's Balance sheet tends to find its way into The market In the case of svb in signature the Money was used to honor withdrawals and Many of these withdrawals probably found Their way into U.S bonds as we've also Seen an acquisition by a mega bank again Results in a market rally this makes Sense considering that an acquisition Sends a better signal than a bailout it Seems that the only sector which suffers From this is crypto which as I mentioned Earlier was itching for some more fed Liquidity if this banking crisis Continues we could also see the FDIC Increase the insurance threshold on Deposits or even remove this threshold Entirely this would effectively mean the FED is guaranteeing all Bank deposits Which is not far off from a cbdc type Arrangement let's hope it doesn't come

To that now if the banking crisis Doesn't continue then this could Actually be bad news for markets and That's for two reasons first the absence Of a crisis means that the market is Unlikely to get the FED pivot it's been Itching for And of course no fed pivot means tighter Financial and economic conditions this Ties into the second reason and that's Credit Even though small and medium-sized banks Have managed to weather the recent storm They have been spooked consequently They're starting to be more careful with How they manage their balance sheets and That includes who they issue loans to According to the fed's own statistics Credit availability fell off a cliff at The end of March Banks reduced their Lending activity by more than 100 Billion dollars if you look closely you Can hopefully see that this has only Happened twice in recent history before The.com crash in 2001 and before the 2008 financial crisis newsflash but the Constant creation of money is required For the Fiat Ponzi scheme to work if This credit contraction continues the U.S economy will follow suit and this Will eventually be reflected in the Markets note that this is exactly what The FED wants because it will bring Inflation down the Practical effect of

This credit contraction will be a Recession which many analysts myself Included have been calling for since Last summer So far no recession but these things do Take time interest rate hikes can take Over a year to affect the economy the Credit crunch also takes months and it's Only just begun Based on what I've heard on the many Macro podcasts I listen to a recession Could start as soon as this summer or as Late as next spring some macro analysts Also believe the recession won't happen For technical reasons for example Unemployment could remain low in stark Contrast to real recessions Now I can't say I know which way it'll Go but I reckon that markets will Struggle even without a recession if This credit contraction continues for The time being it looks like it will but This doesn't mean the FED won't be Injecting liquidity Elsewhere for other Reasons if it does Well get ready for a market rally And that is all for today's video if you Found it informative be sure to smash That like button to let me know and Remember to subscribe to the channel and Ping that notification Bell before you Go Also consider sharing this video so that Your friends and family know what to

Expect if the banks do blow if you Happen to be into crypto I've got Thousands of dollars of discounts and Trading incentives thanks to my Exclusive codes if you want to get those Head on down to the description and Check out the coin Bureau deals page Pronto as always thank you all for Watching and I'll see you next time yo Foreign

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