Markets and policymakers have been waiting for the other shoe to fall since the collapse of Silicon Valley and signature banks last week, fearing a broader international banking crisis.
Concerns over the health of First Republic Bank and a number of other regional powerhouses rocked markets for weeks, and Credit Suisse’s troubles added an international element to the meltdown.
What you should know: First Republic Bank is being bailed out by big banks
While the global financial system isn’t entirely clear yet, crucial support for First Republic and Credit Suisse has helped allay some fears.
Here’s what you need to know about how the financial system is handling the fall of Silicon Valley Bank.
First Republic is bailed out by other banks
First Republic looks like it’ll get by with a little help from its friends.
Eleven of the largest U.S. banks are pooling up to $30 billion to bolster the struggling San Francisco-based regional bank, according to a joint statement by federal financial regulators Thursday.
The megabanks — which reportedly include JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and several others — would each deposit up to $5 million with First Republic to keep the bank solvent and resilient.
Regional banks continue sharp declines amid banking crisis
First Republic faced intense pressure from investors and customers following the collapse of Silicon Valley Bank over the weekend. Like SVB, First Republic is based in Northern California and holds a significant amount of uninsured deposits, which has raised alarms among analysts.
First Republic’s stock has rallied all week on concerns about its financial health and whether it could be the next big bank to fail.
First Republic has around $271 billion in assets and could send shockwaves through the entire banking system if it collapses too.
However, the budding bailout plan appeared to calm concerns on Wall Street. First Republic shares closed Thursday up 10.2 percent at a price of $34.35. but still well below the $115 a share it closed on the eve of SVB’s death spiral.
Credit Suisse is also on course to enlist help from the Swiss National Bank, which has allayed some fears of an SVB-fueled international banking crisis.
says Yellen “Banking system is healthy”
Even before news of the First Republic bailout broke, Treasury Secretary Janet Yellen was trying to reassure Americans that their money was safe.
“I can assure the members of the committee that our banking system is healthy and that Americans can be confident that their deposits will be there when they need them,” Yellen told the Senate Treasury Committee.
Read more: US financial system is healthy, Yellen tells lawmakers
“This week’s actions demonstrate our determination to ensure our financial system remains strong and depositor savings remain safe,” she continued.
Despite fears circling several regional banks, the Federal Deposit Insurance Corp. (FDIC) have not taken over any new failed banks or rushed to bail out their deposits since the SVB and Signature bank collapses over the weekend.
The Federal Reserve has also established an emergency lending facility through which banks can swap Treasury bonds and other securities for cash advances, which should help many companies avoid similar bank scares.
“The reason bank agencies intervened on Sunday night … was because there was a risk that the run would be from some banks to all banks. That risk is essentially suppressed by the Fed backstop,” said Karen Shaw Petrou, Managing Partner at Federal Financial Analytics.
Nevertheless, Petrou warned: “This is a fear-driven, adrenaline-triggering situation and the depositors cannot fight, so they are fleeing. Any additional sign of anything, even if it’s a little scary, could start this up again.”
Markets stumble amid uncertainty
Markets opened sharply lower on Thursday before recovering on news that First Republic would find support from its peers.
The Dow Jones Industrial Average fell more than 200 points in early trade before jumping nearly 700 points to end the day more than 370 points up.
Trading earlier in the week was similarly volatile. On Monday, markets jumped on news that the Federal Deposit Insurance Corporation (FDIC) would fully insure accounts with the SVB before dodging amid fears of a wider contagion.
More gains followed later in the week, buoyed by hopes that the Fed would take a break from raising interest rates. These were also wiped out after financial giant Credit Suisse asked the Swiss National Bank for a bailout.
For the week, the Dow is up about 400 points.
The legislature points the finger everywhere
Members of the Senate Finance Committee squabbled Thursday over who should be blamed for the current spate of bank failures.
Democrats largely blamed loosening banking regulations under the Trump administration, and Republicans pointed fingers at regulators in the Biden administration and at interest rates, but the criticism was too sweeping to fall along party lines.
Senator Elizabeth Warren (D-Mass.) said it was the fact that banks the size of SVB no longer needed to be stress tested that led to the bank’s collapse.
“In 2018, Trump’s Bank Deregulation Act, and the door it opened for Fed Chair Powell to continue picking at the rules, created an exemption from the annual Fed-administered stress tests, which cost banks from $50 billion to $250 billion effectively went off the hook,” she said.
Is deregulation to blame? Warren, Porter introduce bill to reverse Trump-era Dodd-Frank rollback
“It is important to learn more about what triggered the Silicon Valley bank run, the impact of the Federal Reserve keeping interest rates low for too long, and the steps taken by Silicon Valley Bank and banking regulators or were not taken,” he states Republican Mike Crapo (Idaho) said.
Sen. Mark Warner (D-Va.) called out “bad players” in the venture capital (VC) industry whose behavior prompted a panic.
“I used to be a venture capitalist. I think there were some bad actors in the VC community who literally spurred this run by practically howling fire in a crowded theater,” Warner said.
Democrat Michael Bennet (Colo.) specifically criticized SVB bank managers for holding so many bonds in their portfolios while interest rates were being raised at the fastest pace in decades.
What’s next: Jeffries meets with the San Francisco Fed after the collapse of Silicon Valley, the signature bank
“[Federal Reserve Chair] Jay Powell wasn’t exactly secretive about what he did. They had to get that through their board of directors, they had to get that through their audit committee, and somehow they had to get that through a regulatory body that was watching over it and not saying, ‘This is crazy what they’re doing,'” he said.
Taxpayers do not want to be affected by turbulence in the financial sector
A new public opinion poll by Ipsos on how the government should deal with the financial turmoil shows that a large majority of Americans think taxpayers shouldn’t support badly run banks.
According to the poll released Wednesday, “84 percent of Americans agree — 56 percent strongly agree — that taxpayers don’t have to foot the bill for irresponsible bank management, including 85 percent of Democrats and 86 percent of Republicans.”
Not Again: ‘Regrettable and Wrong’: Angry Taxpayers Respond to Recent Bank Bailouts
The poll found that just under half of Americans, 49 percent, support government bailouts of US financial institutions. This compares to just 37 percent of Americans supporting bailouts in 2012.
“It just seems unfair that it’s always the banks that get bailed out rather than the people who seem to be getting worse and worse amid inflation, rising costs and stagnant wages,” Victoria St. Louis, a Western Governors University student, told The Hill an interview this week.
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