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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.

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JP Morgan has acquired First Republic out of receivership.

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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

  1. Since 2001 US Treasuries have paid tiny tiny rates
  2. 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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  3. 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.
  4. 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.
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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.

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But in the minds of the Left, NOTHING is ever the fault of government.

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Off the top of my head, I can think of two easy ways to “destroy” the banking industry:

  1. Have two large GSEs begin deliberately mis-rating loans,
    → then have the private sector imitate the practice. (This is exactly what happened circa 2008)
  1. 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.)