It would be prudent to claw back bonuses and compensation from executives whose leadership led to the failure of their institutions. It seems executives rely more on luck, prioritizing short-term results over long-term sustainability, over prudent risk management practices.
Takeovers of failed institutions by large banks should have stipulations for the large banks to stabilize operations with required divestitures to smaller institutions. There seems to be momentum to fuel the conundrum of "too big to fail."
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Matt Johnson
CFO
Premier Bank
Omaha, NE
Posts reflect my personal opinion and do not represent any organization in which I am affiliated.
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Original Message:
Sent: 05-01-2023 16:11
From: Rob Blackwell
Subject: Tuesday Topic: First Republic Fallout
Despite the best efforts of regulators and industry players to keep First Republic afloat, the California Department of Financial Protection and Innovation seized the bank early Monday morning and appointed the FDIC as receiver. It's yet another inglorious end for a regional bank that failed to manage the impact of rising interest rates.
The FDIC has accepted a bid from JPMorgan Chase to purchase the majority of First Republic's assets and deposits, including some $173 billion in loans and $30 billion in securities. JPMorgan will also assume $92 billion in FRB deposits-including $30 billion in deposits from large banks placed in March.
So, are we done now? That's the big question hanging over everything. Given that regulators did not have to invoke the systemic risk exception, that's one set of policy issues that aren't re-raised by this collapse. And unlike FRB, other regional banks have stabilized in the weeks since the failures of Silicon Valley Bank and Signature Banks. So the contagion risk appears far less than it might have had FRB collapsed a month ago.
But there are other issues that have now been raised, including that the country's biggest bank will now get even bigger, a situation that is already not sitting well with progressive lawmakers. To enable this transaction, regulators had to grant JPM waivers to rules that prevent a bank from acquiring another institution if doing so means it will have more than 10% of the nation's total deposits and liabilities.
Meanwhile, this failure will cost $13 billion to the Deposit Insurance Fund, according to FDIC estimates. Unlike the earlier bank failures, this will not be borne by a special assessment likely to target bigger banks, but instead will come from regular assessments paid by all banks.
So what do you think happens next? Are you comfortable with this outcome given that it appears likely to stem more unrest? Or should regulators have steered a different course?
The FDIC has accepted a bid from JPMorgan Chase to purchase the majority of First Republic's assets and deposits, including some $173 billion in loans and $30 billion in securities. JPMorgan will also assume $92 billion in FRB deposits-including $30 billion in deposits from large banks placed in March.
So, are we done now? That's the big question hanging over everything. Given that regulators did not have to invoke the systemic risk exception, that's one set of policy issues that aren't re-raised by this collapse. And unlike FRB, other regional banks have stabilized in the weeks since the failures of Silicon Valley Bank and Signature Banks. So the contagion risk appears far less than it might have had FRB collapsed a month ago.
But there are other issues that have now been raised, including that the country's biggest bank will now get even bigger, a situation that is already not sitting well with progressive lawmakers. To enable this transaction, regulators had to grant JPM waivers to rules that prevent a bank from acquiring another institution if doing so means it will have more than 10% of the nation's total deposits and liabilities.
Meanwhile, this failure will cost $13 billion to the Deposit Insurance Fund, according to FDIC estimates. Unlike the earlier bank failures, this will not be borne by a special assessment likely to target bigger banks, but instead will come from regular assessments paid by all banks.
So what do you think happens next? Are you comfortable with this outcome given that it appears likely to stem more unrest? Or should regulators have steered a different course?
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Rob Blackwell
Chief Content Officer and Head of External Affairs
IntraFi
Arlington, VA
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