The banking sector has been in turmoil in recent days, with two banks – Silicon Valley Bank and Signature Bank – failing after experiencing sudden cash crunches.[0] This has caused a series of events leading to a $30 billion rescue package for First Republic Bank (FRC) from 11 of the nation’s largest lenders, including JPMorgan (JPM), Citigroup (C), Bank of America (BAC), and Wells Fargo (WFC).[1]
The rescue package has done little to calm jittery investors, and First Republic’s stock has dropped 32.8% since the announcement on Thursday.[2] Shares of the SPDR S&P Regional Banking ETF (KRE) have also plummeted 24.5% in the past seven trading days, as analysts fear the depositor-driven panic could slow the economy later this year.[3]
As depositors have withdrawn an estimated $90 billion from First Republic, the bank also announced it borrowed tens of billions of dollars from the Federal Reserve and the Federal Home Loan Bank over the past week.[4] First Republic had about $180 billion in deposits heading into this year, 68% of which exceeded the Federal Deposit Insurance Corporation’s (FDIC) insurance cap of $250,000.[0]
The University of Michigan’s consumer sentiment index also fell to 63.4 in March, from 67 last month as inflation expectations remained elevated.[5] Credit Suisse (CS) shares have had a volatile week after its largest investor announced it would not provide additional funding to the bank.[4] On Thursday, the stock market had a brief surge after Credit Suisse revealed that it would obtain up to 50 billion Swiss francs ($54 billion) from the Swiss National Bank.[4]
On the data front, bitcoin has gained over 20% in the past nine sessions, to trade at $26,750.50 on Friday, according to CoinDesk data.[6] On Friday, Bitcoin experienced a 4% increase, bringing its value up to $26,860 and staying near its[6]
Bill Ackman of Pershing Square has been vocal about his concern for a financial contagion risk spiraling out of control.[7] He tweeted that spreading the risk of financial contagion to achieve “a false sense of confidence” in First Republic Bank is “bad policy”.[8] He also said that “hours matter” and “half measures” don’t work in a crisis of confidence.[9]
0. “First Republic sees ‘gob-smacking’ deposit outflows; shares plummet after rescue package” Crain’s New York Business, 17 Mar. 2023, https://www.crainsnewyork.com/finance/first-republic-sees-gob-smacking-deposit-outflows-shares-plummet-after-rescue-package
1. “Could First Republic bank collapse trigger a recession?” San Francisco Chronicle, 18 Mar. 2023, https://www.sfchronicle.com/tech/article/first-republic-bank-collapse-recession-17845950.php
2. “FRC Tanks after it Suspends Dividends” TipRanks, 17 Mar. 2023, https://www.tipranks.com/news/frc-tanks-as-it-suspends-dividends
3. “From SVB’s sudden collapse to Credit Suisse’s fallout: 8 charts show turbulence in financial markets” MarketWatch, 18 Mar. 2023, https://www.marketwatch.com/story/from-svbs-sudden-collapse-to-credit-suisses-fallout-8-charts-show-turbulence-in-financial-markets-48caa0f3
4. “Dow closes nearly 400 points lower on Friday as First Republic and regional banks resume slide: Live updates” CNBC, 17 Mar. 2023, https://www.cnbc.com/2023/03/16/stock-market-today-live-updates.html
5. “Markets Dip, Signaling Pause In Rally As Focus Shifts To Next Week’s Fed Decision: Analyst Says Brace For” Benzinga, 17 Mar. 2023, https://www.benzinga.com/news/earnings/23/03/31394507/nasdaq-s-p-futures-dip-signaling-pause-in-rally-as-focus-shifts-to-next-weeks-fed-decision-analyst–
6. “Bank Stock Crash Deepens: Dow Sinks 400 Points As Top Banks Shed Another $54 Billion” Forbes, 17 Mar. 2023, https://www.forbes.com/sites/dereksaul/2023/03/17/bank-stock-crash-deepens-dow-sinks-400-points-as-top-banks-shed-another-54-billion/
7. “US banks launch $30bn rescue of First Republic to stem spiraling crisis” The Guardian, 16 Mar. 2023, https://www.theguardian.com/business/2023/mar/16/first-republic-bank-rescued-latest
8. “Bill Ackman is ‘extremely concerned’ about financial contagion risk ‘spiraling out of control’ after First Republic rescue” Fortune, 17 Mar. 2023, https://fortune.com/2023/03/17/bill-ackman-extremely-concerned-financial-contagion-risk-spiraling-out-of-control-first-republic-rescue
9. “Ackman says plan to deposit $30B into First Republic is bad policy” Business Insider, 17 Mar. 2023, https://www.businessinsider.com/bill-ackman-first-republic-deposit-plan-false-confidence-bad-policy-2023-3