The Washington Post
First Republic, SVB, Credit Suisse: The latest banks in trouble and why
Ellen Francis – March 17, 2023
First Republic Bank is the fourth bank to face a crisis in the past week, as banking and government officials try to dispel fears of a wider financial meltdown.
Here’s a recap of some of the latest troubled banks, and what this could mean.
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What is First Republic Bank and why did it need rescuing?
It’s a San Francisco lender founded in 1985 that specializes in private banking and wealth management. Its shares plunged earlier this week, raising the specter of a third major U.S. bank implosion in days.
This is why 11 of the largest banks in the United States stepped in with an announcement on Thursday that they would deposit a total of $30 billion into their smaller peer. The bid to stabilize First Republic Bank was coordinated partly by federal officials, The Washington Post reported, and it came on the same day that Treasury Secretary Janet L. Yellen told lawmakers that the U.S. “banking system is sound.”
The intervention, seen as one of the most sweeping in modern U.S. banking history, highlighted concerns in Washington and on Wall Street after the failures of Silicon Valley Bank and Signature Bank last week.
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How did Silicon Valley Bank’s failure spark fears of a global financial crisis?
Financial regulators closed Silicon Valley Bank (SVB), which catered to venture capitalists and start-ups, about a week ago, making it the second-biggest bank failure in U.S. history.
Depositors had rushed to withdraw their money after the firm filed a notice that it was selling billions in assets to shore up its finances. The bank was tightly linked to the tech industry, which is beset by layoffs.
Such a rapid collapse – the first major U.S. banking scare since the crisis that sparked the Great Recession – sent shock waves through the financial system, and it prompted fears that money needed to pay tech workers could be lost or frozen.
That’s because bank deposits in the United States are only insured by the federal government for up to $250,000. At SVB, more than 90 percent of depositors had accounts over that limit – many of them exceeding it by millions of dollars. Businesses couldn’t pay workers if their accounts were frozen or, worse, if SVB hadn’t actually had enough money to cover withdrawals from uninsured accounts.
So last weekend, U.S. officials announced plans to guarantee deposits and to create a new central bank lending program, maintaining assurances that the situation is different from the financial crisis of 2008. The Biden administration also said taxpayers will bear no cost for the backstop, although critics note that the deposit insurance is funded by fees levied on banks, which could, in turn, raise costs for customers.
The Justice Department and the Securities and Exchange Commission have launched investigations into the SVB collapse and the actions of its senior executives, as questions also emerged about regulators missing warning signs.
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Is this connected to the Signature Bank collapse?
Regulators closed Signature Bank, a New York-based financial institution crucial to the cryptocurrency industry, last weekend after a deposit run.
The demise of an institution also enmeshed in the tech industry was prompted in part by the fallout after SVB, New York Gov. Kathy Hochul (D) told a news conference.
Signature Bank served many clients deeply involved in cryptocurrency, which had a sharp drop in value last year, while other depositors included law and real estate firms. Officials extended the same deposit protections to its customers.
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What happened with Credit Suisse this week?
A giant European bank with assets spanning the globe, Credit Suisse had disclosed “material weaknesses” in its financial reporting, before announcing this week it would borrow up to $53.7 billion from Switzerland’s central bank to reinforce its finances.
Credit Suisse’s troubles predated SVB’s collapse, and they’re not caused by the same factors that brought down the U.S. banks. But the failure of SVB spooked markets, and the Swiss bank’s announcements made investors fearful of a broader contagion.
The liquidity lifeline to Credit Suisse from the Swiss central bank – which Reuters described as the first one taken by a major global bank since 2008 – appeared to calm European markets in the immediate aftermath of the announcement.
The Washington Post’s Jeff Stein, Pranshu Verma and Adela Suliman contributed to this report.