Banks are starting to fail in the United States, and the question is why? We don’t get into conspiracy theories here because often times its nothing more than bad information. However, this bank failure would be the third bank in the United States that failed this year. The first bank that went bust was Silicon Valley Bank in California. The second bank was the Signature Bank in New York and now the First Republic Bank has gone belly up. Again, what’s really going on here?
One of the issues as to why First Republic Bank failed was due to the United States Federal Reserve Bank raising rates faster than what First Republic Bank could financially recoup the capital needed to get themselves out of debt. The other third of the problem lies in the fact that First Republic Bank loaned too much money out to their consumers with too low of an interest rate combined with the fact that their investment portfolio became undervalued because of their business practices. The final third served as the last nail in the coffin when customers started pulling all of their money out of this particular bank which is also known as a “bank run”.
Knowing that they were going to go bust, they took money (loans) from over 10 banks to the tune of 30 billion dollars to keep them afloat. Now America tends to adhere to the logic that you should “pull yourself up by your bootstraps”. But this logic tends not to apply to private businesses that the U.S. Government deems “too big to fail”. This is a slap in the face to the American people who more than likely are never bailed out of their financial woes unless it benefits the U.S. Government. First Republic Bank was a bank that catered to wealthy people and its failure to thrive in this economic climate should be considered an indicator that the wealthy people in the United States aren’t as wealthy as they used to be.
As the 14th largest bank in America, their share prices went from $204.06 to falling to just $3.51 a share. Another question that should come to mind is why didn’t anyone rack up on the ultra-low stocks besides another bank to aid the bank in their financial recovery? Currently there is not a clear answer for that question, but it’s a question that needs to be answered none-the-less. But there was one clear winner in this failure and that winner was JP Morgan Chase acquiring First Republic bank and all their assets. Will they liquidate the assets of First Republic Bank? No one really knows. But there is a hidden issue that no one is talking about here and that is the issue of the biggest banks in the United hStates getting bigger.
There lies another potential future issue, and that is what happens when the biggest banks who acquired all the smaller banks go bust? Let’s face it, nothing lasts forever. This is one reason why the Glass-Steagall Act was so important. The Glass-Steagall Act prevented commercial banks from merging with investment banks as well as stopping banks from having branches outside of the state they were operating in. This balancing act was violated by President Franklin D. Roosevelt in 1933. Moreover, the golden caveat of the Glass-Steagall Act was that it prevented the banks from using your money to obtain high risk investments. In a nutshell, what we’re saying here is that the Glass-Steagall Act prevented banks from conducting interstate banking and banks becoming even larger banks by acquiring smaller/insolvent banks over state lines and gambling with your money (“investing” with your money).
The First Republic Bank will not be the last bank that we will see fail in America. Get ready to see more banks collapse – especially the smaller ones.
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