The collapse of the Silicon Valley Bank and Signature Bank sent a shockwave across the nation and around the globe.
Whispers of 2008 created a run on banks that threatened to have a massive collapse.
The banks themselves, however, stepped up to stop the run and get the industry leveled off.
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I am not a financial expert, but the reason SVB collapsed seems pretty clear… isolated mismanagement.
This was not what happened in 2008 when the entire industry was neck keep in the housing market collapse.
Even so, when one bank collapses, it creates panic in the industry.
In an effort to stop the run before it started, big banks stepped up to save another small bank from what seemed to be an imminent collapse.
Five different banking groups stepped up to collectively deposit $20 billion in the First Republic Bank to prevent its collapse.
Wells Fargo, JPMorgan Chase, Bank of America, and Citigroup all dropped $5 billion into the bank.
Goldman Sachs Group Inc. and Morgan Stanley had deposited $2.5 billion.
After that announcement, PNC, BNY Mellon, Truist, U.S. Bancorp, and State Street pledged to deposit $1 billion.
The banks have vowed to keep their commitment in place for 120 days.
This should give First Republic time to find a buyer for a company’s whose stock got crushed during this run.
The stock dropped from $115 per share down to $34.
Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, FDIC Chairman Martin Gruenberg, and Acting Comptroller of the Currency Michael Hsu all supported the move.
They stated, “Today, 11 banks announced $30 billion in deposits into First Republic Bank. This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”
As long as First Republic can survive this mini-collapse, the banking world should be able to absorb this hit.
If, however, the private sector’s efforts fall short, Biden will have another crisis on his hands that could create an even bigger economic collapse than we saw in 2008.
Source: DC Enquirer
