First Republic’s crisis is not an isolated incident: JPMorgan exec
The chief investment officer of J.P. Morgan Asset Management said it would be “naive to say that this is just limited to First Republic.”
An executive at J.P. Morgan Asset Management is unsure how United States regional banks are “going to operate” when the Federal Deposit Insurance Corporation (FDIC) and Federal Home Loan Banks (FHLB) emergency lending programs expire, warning that the possible collapse of First Republic Bank may cause a domino effect.
In an April 27 Bloomberg television interview, Bob Michele, the chief investment officer of J.P. Morgan Asset Management, said that the impact of First Republic’s liquidity issues caused by significant deposit outflows isn’t “just limited” to the bank itself but could potentially affect the entire banking industry.
Michele emphasized that this is not an isolated incident when asked if he sees this as a “First Republic problem or a banking problem.” He stated:
“Well, I think we have both, I think it’s somewhat naïve to say that this is just limited to First Republic.”
He added that the liquidity issues faced by First Republic “should never have happened,” as banking is the “most heavily regulated capitalized industry on the planet.”
Michele believes there needs to be “continuous progress to some sort of resolution” for the impact of First Republic’s downfall to be contained or “ringfenced” and prevented from spreading throughout the broader financial system.
Michele blamed the “high price of everything” as a significant factor leading to the recent banking crisis: The “bottom quartile of earners” in the United States have been “most punished” and forced to deplete their deposit balances “just to live,” he said.
He added that “most people’s” deposit balances are now even lower than before the beginning of the COVID-19 pandemic.
Michele believes a resolution is urgently needed as regional banks are “heavily dependent” on the FDIC and FHLB.
“I think the regional banks are heavily dependent on the FDIC, they are heavily dependent on the federal home loan bank to get additional cash; we don’t know how they are going to operate when those two programs expire.”
During the last quarter of 2022, both Signature Bank and Silvergate Bank reportedly received substantial loans from the FHLB — a consortium of 11 regional banks across the United States that provides funds to other banks and lenders — totaling nearly $10 billion and $3.6 billion, respectively.
However, despite the financial assistance, both banks eventually collapsed due to significant deposit outflows.
Ryan Selkis, the CEO of blockchain research firm Messari, suggested in a tweet to his 322,000 followers on April 29 that unless the government recognizes that the Federal Reserve’s policies “are to blame and not crypto,” more banks may face collapse in the future.
This comes after “people with knowledge” told Bloomberg on March 21 that U.S. Department of the Treasury staff members are reportedly studying ways to expand the current deposit insurance beyond the maximum cap of $250,000 to cover all deposits in the United States.
According to the FDIC, domestic U.S. bank deposits totaled $17.7 trillion as of December 31, 2022.