FDIC is currently seeking a buyer for First Republic, which is now hopelessly insolvent. Buyer or not, it will be seized in the early hours of Monday morning, before business hours.
I wouldn’t read too much into this. Like SVB, it had a specialized business model and in fact SVB’s fall was pretty much the end for First Republic.
Specialized business models are what regional banks are all about.
Here in S Jersey, regional banks fill the gap where summer homes are often multi-unit properties with not heat etc. it’s hard to get a loan from a national bank
In Texas, regional banks fill the gap where wild cate oil drillers etc. find it’s hard to get a loan from a national bank
In other places it getting a farm loan to cover a corn crop you haven’t harvested, or fishermen getting a loan for the season before they catch any fish.
Specialized customer-base aside both banks faced the same basic set of problems
Since 2001 US Treasuries have paid tiny tiny rates
Since Dodd-Frank regional and other banks are forced to make those tiny-tiny-rate-bonds a mainstay of their balance sheets
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.
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When rates eventually go up, long-term bonds keep their long-term value but their “sell-now value” drops. -->Which does not matter at all, unless you have to cash them in early.
Both banks were faced with a need to sell or mark-down their long-term bonds early, reportedly the mark-down was not so large as to cause insolvency BUT led to a panic which did.
While I find SVBs practices particular questionable both banks the same set of problems
Big government artificially forced bond interest rates lower (blame the banks)
Big government artificially forced them to invest in those low-rate bonds (blame the banks)
When those big government policies were unsustainable the banks failed.
These days, investing in banks (or even keeping a large deposit in one) is a little like investing in tobacco companies or gun manufacturers. The free markets don’t matter. 100% of what you are doing is betting on what the next government policy will be.
Off the top of my head, I can think of two easy ways to “destroy” the banking industry:
Have two large GSEs begin deliberately mis-rating loans,
→ then have the private sector imitate the practice. (This is exactly what happened circa 2008)
Require banks to invest primarily in “safe” gov’t bonds with artificially-low interest, and make risky loans
→ then pull the rug out from under them by raising rates suddenly (This is what is happening now.)