There’s something sketchy afoot in the world of high finance. Following the collapse of Silicon Valley Bank, the most likely first contagion bank would have been First Republic Bank; both California banks carried similar vulnerabilities. However, once the Treasury Dept agreed to cover all deposits, even those unsecured deposits over the $250k FDIC insurance protection, suddenly First Republic Bank survived.
After the FDIC announcement, a group of 11 larger banks lent First Republic a tranche of money ($30 billion) to secure its holdings and help stabilize it. Approximately six weeks passed, suspiciously perhaps the burn rate for the tranche in combination with risk averse exits says I, and suddenly First Republic starts destabilizing again. [Insert Suspicious Cat here]
The First Republic stock value collapsed further last week, and the FDIC is now trying to get a takeover bid secured before government regulators are forced into a position of receivership. I’m not dialed in to the banking industry, but it looks to me like the six-week interim phase was an agreement to give the illusion of stability and afford time for highly exposed, ¹likely well connected, stakeholders to exit.
With the Treasury taking the prior SVB position, thereby securing all deposits regardless of scope, the FDIC is now on the hook if the collapse includes a govt takeover. The FDIC seems to be playing hot potato and looking for a buyer. Additionally, the FDIC is asking JP Morgan-Chase if they are interested. JPMorgan holds more than 10% of all deposit funds in U.S. banking. From a regulatory position, JPM cannot legally take any more institutional deposits. So, what gives? It is all sketchy, all of it.
(Bloomberg) — The Federal Deposit Insurance Corp. has asked banks including JPMorgan Chase & Co., PNC Financial Services Group Inc., US Bancorp and Bank of America Corp. to submit final bids for First Republic Bank by Sunday after gauging initial interest earlier in the week, according to people with knowledge of the matter.
The regulator reached out to some banks late Thursday seeking indications of interest, including a proposed price and an estimated cost to the agency’s deposit insurance fund. Based on submissions received Friday, the regulator invited some of those firms and others to the next step in the bidding process, the people said, asking not to be named discussing the confidential talks.
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