Will First Republic Bank Be the Next To Go?
March 18, 2023, 2022 (EIRNS)—The government’s Plunge Protection Team of high-level financial officials is even busier this weekend than last, when they urgently met to put together the bail-out of Silicon Valley Bank. This weekend it’s First Republic Bank, a medium-sized California bank with just over $200 billion in assets, which is hanging by a thin thread.
Earlier this week, on March 16, First Republic Bank had to be thrown a $30 billion lifeline to prevent it from going belly-up. Since Treasury Secretary Janet Yellen didn’t dare have the government openly carry out another bail-out—84% of all Americans are opposed to further bank bailouts, according to recent polls—she instead had a word with JPMorgan CEO Jamie Dimon and instructed him to do the dirty work along with other big banks. The result was $30 billion in cash deposited into First Republic’s accounts by nearly a dozen large banks.
“But it’s not clear it’s working,” former FDIC Chairwoman Sheila Bair warned on the CNBC television network on Friday, March 17. “This First Republic thing, it’s disappointing. I’m glad at least they didn’t use government support, that the private banks came in to try to stabilize it.... The problem is with this that fear becomes the major issue.”
Treasury Secretary Janet Yellen herself worsened the problem in March 16 testimony to Congress, announcing that unsecured deposits in small and medium banks would not be bailed out by the Treasury, as they had done with SVB. Only unsecured deposits in the mega banks where “systemic risk” was at issue would be bailed out. Predictably, people pulled money out in droves from medium banks to flee to the mega-giants, leading Rebeca Romero Rainey, president of the Independent Community Bankers of America, to issue a statement sharply denouncing Yellen.
“How Deep Is the Rot in America’s Banking Industry?” London’s The Economist of May 16 dared to ask—but studiously avoided answering. They would only say that “Silicon Valley Bank may be the start of something grimmer.” Even former Treasury Secretary Larry Summers had to admit there’s a big problem: “One might have supposed that Silicon Valley Bank would be a good candidate for failure without contagion,” he stated. Nevertheless, withdrawal requests at other regional banks in the following days showed “there was in fact substantial contagion.”
“These events raise profound questions about America’s banking system,” The Economist admitted. “The result of all this is that the banking system is far more fragile than it was perceived to be.”