A JP Morgan Asset Management executive isn’t sure how regional US banks are “going to perform” when emergency lending programs expire of the Federal Deposit Insurance Corporation (FDIC) and the Federal Home Loan Banks (FHLB), and warns that the possible collapse of the First Republic Bank could cause a domino effect.
In an interview with Bloomberg television on April 27, Bob Michele, chief investment officer at JP Morgan Asset Management, stated that the impact of First Republic’s liquidity problems caused by large deposit outflows is not “limited” to the bank itself, but could affect the entire banking sector.
Michele stressed that this is not an isolated incident when asked if he saw it as a “First Republic or banking problem”. He stated:
“Well I think we have both, I think it’s kind of naive to say this is limited to just First Republic.”
He added that the liquidity problems facing the First Republic “should never have happened” as banking is “the most heavily regulated capitalized industry on the planet”.
Michele considers that there has to be “continued progress toward some sort of resolution” for the impact of the First Republic’s fall to be contained or “bounded” and prevent it from spreading throughout the financial system in general.
Michelle blamed the “high price of everything” as a significant factor leading to the recent banking crisis: The “bottom income quartile” in the United States has been the “hardest hit” and has been forced to deplete their deposit balances “just to live,” he said.
He added that the deposit balances of “most people” are now even lower than before the start of the COVID-19 pandemic.
Michele estimates that Resolution Urged as Regional Banks “Heavily Reliant” on FDIC and FHLB.
“I think the regional banks are heavily reliant on the FDIC, heavily reliant on the federal home loan bank for additional cash, we don’t know how they’re going to operate when those two programs expire.”
According to reports, during the last quarter of 2022, both Signature Bank and Silvergate Bank received significant FHLB loans — a consortium of 11 regional banks from across the United States that provide funds to other banks and lenders — totaling nearly $10 billion and $3.6 billion, respectively.
However, despite financial aid, both banks eventually collapsed due to large deposit outflows.
Ryan Selkis, the CEO of blockchain research firm Messari, suggested in a tweet to his 322,000 followers on April 29 that Unless the government acknowledges that Fed policies are “to blame and not crypto,” more banks could face collapse in the future.
Did crypto kill First Republic too?
Or is DC going to recognize that their and the Fed’s policies are to blame and not crypto.
Maybe by bank #10, things will change.
—Ryan Selkis (@twobitidiot) April 28, 2023
Did crypto kill the First Republic too?
Or is DC going to acknowledge that its policies and those of the Federal Reserve are to blame and not crypto?
Maybe for bank #10, things will change.
This comes after “people in the know” told Bloomberg on March 21 that US Treasury Department staff members are reportedly looking at ways to extend existing deposit insurance beyond the $250,000 ceiling to cover all deposits in the United States.
According to the FDIC, US bank deposits stood at $17.7 trillion as of December 31, 2022..
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