Remember it, All began in the U.S. last week when two American banks collapsed, the Silicon Valley Bank and the Signature Bank, and it’s not over yet. One more American bank could be on the brink; it’s called the First Republic Bank.
It is based in San Francisco and is worth almost six billion dollars. The bank has around 6,300 employees and several high-profile customers, but First Republic may not have enough money, leading ratings agencies have downgraded this bank. We’re talking about S&P Global and Fitch. They have downgraded the bank and now rate it as junk.
You may ask why the bank was tagged as junk for the same reason as before: ratings agencies felt the bank could face a cash crunch where depositors would want to pull their money out and the bank may not have enough to give them. Which is exactly what happened at the Silicon Valley Bank. There was a bank run, depositors rushed to withdraw cash, and the bank was not liquid enough, meaning it did not have enough free cash.
That’s because the deposits were tied up in government bonds and their value had decreased with First Republic.We could see that some of these experts are flashing the same warning signs again. The First Republic stock price has fluctuated in the past week; at one point, it was down by over 60 percent.
Reports say First Republic is now looking at its options. It could try to raise cash to improve liquidity; it could even look to sell the bank. These are extreme measures that give an indication of how much trouble the bank could be in, and this may not be a unique case.
First Republic Bank is not the first canary in the coal mine but, there are canaries that are now feeding up and those include things like Silicon Valley Bank, Signature Bank, and lots of worry about Credit Suisse, the storage financial institution.
Let me rephrase what he’s saying: “There are many banks in trouble. You’ve already told you so. Who else is in trouble?” The credit ratings agency Moody’s has released a list that includes Western Alliance Bancorp in Trust Financial Corp., UMB Financial Corp., Zions Bancorp, and Comerica Inc. All of these banks are said to be unhealthy.
What is their problem? Uninsured deposits of customers and unrealized losses, meaning potential losses, are still on the books of these banks, and this is just one list. The crisis could be bigger than it appears right now, and I’ll tell you why I say this. American banks recently made some filings, and they show major banks have taken some serious losses.
I have some numbers. 160 major American banks have lost at least 206 billion dollars. These are banks with more than five billion dollars in assets; every bank on this list has assets worth over five billion dollars. These are unrealized losses, meaning the banks continue to own these loss-making assets; they haven’t been sold yet, but their value has gone down, so if they’re sold today, the banks will suffer a loss.
Banks park their cash deposits in government bonds; it is considered a safe investment; the calculation is that, when you sell these bonds, you will make more money; but in this case, the value of U.S. government bonds has gone down.
Last year, when the U.S. treasury hiked interest rates, they issued new bonds that offered a higher interest rate, so the old bonds lost their value, and these banks that we’re talking about have old bonds.
Now they’re trading in the red for some banks like Silicon Valley; the losses were simply too big. Silicon Valley lost almost 2 billion dollars on a single sale. The bank needed this money to pay back depositors; it sold bonds for losses, so other depositors got worried and came to take their cash.
The bank did not have that cash, so it collapsed, and this fall had a cascading effect. All of America’s biggest banks have seen losses; all of them have lost money in U.S. government bonds. Bank of America, 21.2 billion dollars; J.P. Morgan Chase, 17.3 billion dollars; Truest Financial Loss, 13.6 billion dollars; Wells Fargo, 13.4 billion dollars; and U.S. Bancorp, 11.4 billion dollars.
These losses are as per the last round of filings. The present value of these assets could be different, but the situation is unlikely to have changed significantly, and these are big banks they’re talking about; they can take such losses.
The smaller ones would not survive something like this; their fate is yet to be decided. The question is, “Who’s responsible for this crisis?” and “How did this happen?” Some experts blame the U.S. Federal Reserve for this; the U.S. Federal Reserve is America’s Central Bank. They say the U.S. Fed has cracked the financial system, and the FED is in a tough position.
Bank runs are pretty quick, the FED has limited tools to deal with inflation, and they’ve been using a wrecking ball instead of a scaffold or a scalpel. They used a wrecking ball, which sounds a lot like America, and now they’re suffering and making the world suffer with them.
