Banks in crisis: two hectic months with 3 of the 5 biggest bankruptcies in history

Silicon Valley Bank
Key facts:
  • Bank failures this year dwarf those that occurred in 2008.
  • The worst is not over”, says an analyst on the banking crisis in the United States.

The United States authorities announced yesterday the intervention of First Republic Bank, its closure and the sale of its assets and accounts to the giant JPMorgan Chase. It is the third major financial institution in the country to fail in just two months, after the collapse of Silicon Valley Bank (SVB) and Signature Bank. 

Based on the volume of its assets, $229 billion as of mid-April according to official data, it makes First Republic Bank’s bankruptcy the second largest retail bank in US history. This was after the collapse, in 2008, of Washington Mutual, which led to the largest collapse of a financial entity in the history of the United States.

California authorities said they saw no choice but to seize First Republic Bank and turn it over to the Federal Deposit Insurance Corporation (FDIC), the independent government agency that insures deposits for bank customers.

The measure was taken after a flight of deposits that exceeded USD 100,000 million in recent weeks and a stock market crash of 97% only in 2023.

The fall of First Republic comes a month and a half after the collapse of Silicon Valley Bank and Signature Bank, representing the third and fourth largest bank failures in US history.

The three largest bank collapses this year are even larger than those of the 2008 financial crisis, as together they total more than $540 billion. 

The total amount of bankruptcies this year dwarfs the total assets Washington Mutual had in 2008, valued at more than $370 billion, according to data reported by the FDIC.

In just two months, 3 of the 5 largest bank failures in the United States have occurred . Together they represent the biggest crisis that the country has suffered in its entire history if the volume of assets is considered.

The sum does not include failed investment banks such as Lehman Brothers, but it does serve to provide an overview of what the current banking collapse represents. Between March and May 2023, the second, third, and fourth largest bank failures in US history occurred, and the largest in terms of asset volume. Source: FDIC.

Will the 2023 banking crisis spread?

The US government moved hastily to prevent the First Republic from sowing more turmoil in the banking sector. However, the forced intervention of the FDIC is fueling concerns about the general health of the US banking sector.

In response, JPMorgan Chairman and CEO Jamie Dimon said that the banking system is “nearing the end” of its problems and that, despite the failure of First Republic, the situation was nothing like a banking crisis. and financial of 2008.

Bank analysts agree with this position, saying that no other major bank is as visibly on edge as First Republic was. Therefore, they consider it unlikely that there will be other large government acquisitions in the coming weeks. 

However, analyst Mario Nawfal believes the US Federal Reserve is “terrified of more banks failing”, so they made sure the First Republic acquisition went smoothly to keep confidence high.

Nawfal suspects that a bank contagion could ensue “with more chips falling, like dominoes, if commercial real estate continues to collapse.

Fears that the sector could be next to fall have grown after last month’s banking turmoil, as many anticipate rising interest rates will continue to take their toll in various markets.

“The worst is not over,” says Nawfal, who suspects there is “bank exposure to bad commercial real estate loans.”