A Third Major Bank Collapse

Over the past weekend, First Republic Bank ($FRC) collapsed making it the third major bank to collapse this calendar year. The bank was taken over by the FDIC on Friday and put on the “market” to “sell” to another bank over the weekend.

First Republic bank (FRC) first saw its share start to fall in March as the SVB collapse started happening. Larger banks provided $30 billion in liquidity to keep the bank afloat. FRC lost $70+ billion in deposits which inevitably lead to this graph below.

On Sunday, the FDIC agreed to sell FRC to JP Morgan. JP Morgan (JPM) will assume $92 billion in FRC deposits, $173 billion in loans, and $30 billion in securities. JPM is expected to generate a one-time gain of $2.6 billion and over $5 billion a year in profit from this acquisition. On Monday, JPM added $18 billion in market cap to their stock.

Sharing Losses is the New Bailout

On top of the $2.6 billion and $5 billion in yearly profit JPM is expected to make, the FDIC (using your taxpayer money) is covering $13 billion in losses and providing $50 billion in financing for JP Morgan to purchase FRC. In other words, your taxpayer money is covering the loses (downside) so JP Morgan can enrich itself. If it isn’t bad enough yet, the FDIC also broke US bank regulation which currently doesn’t allow banks that control 10%+ of all deposits to acquire another bank that accepts deposits.

The top 15 banks control 75% of their deposits in the US. We have gone from 31k banks in 1920 to 4,100 as of today. After this regional bank crisis, regulators will tighten up (add more regulation) which will further squeeze that number (4,100) even smaller.

First Republic Bank Summed Up

First Republic Bank has spent weeks trying to sell itself within the market with no luck. Obviously, any smart bank wouldn’t want to consume their basket of debt. Once things started getting bad, the FDIC stepped in to make a deal to sell the bank. When it was obvious no bank would bite, the FDIC agreed to pick up the tab, break the rules, and “sell” to JPM to “save the system”.

The New FDIC Standard.

It seems a new standard has been set in the US banking system. If a bank is on the verge of collapsing, the FDIC will step in and “share the lose”. In other words, the FDIC is back stopping all deposits, leaving no way for a bank to lose deposits (since its backed by the government). If they aren’t doing that, then they are enriching large banks by selling them assets and covering the downside while bailing out the failing bank. I’m not sure which is worse, but I can tell you both of these outcomes have the same end-point: a socialized banking system with massive government control.

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