After a bank run, the US regional bank First Republic is in danger of collapsing. How could it come to this?
Another bank in crisis: The US regional bank First Republic is currently experiencing a bank run. The stock has completely collapsed. Investors doubt the bank’s ability to survive. “In the first quarter, customers withdrew about half of their deposits,” says Jens Korte, SRF stock exchange correspondent. “It’s dramatic.”
The reason for the difficulties: The US Federal Reserve raised interest rates sharply last year. This has thrown many banks into trouble. “Interest rates were raised as aggressively as they were last in the 1980s,” says Korte. Despite the turbulence, the European Central Bank continued to raise interest rates in mid-March. Another interest rate decision is due on May 4th.
Collapse of the Silicon Valley Bank: In March, the Silicon Valley Bank and several other regional banks in the USA collapsed, triggering shock waves in the financial markets. Shortly thereafter, Credit Suisse had to be rescued by the big bank UBS via an emergency takeover.
Situation of small and medium-sized banks in the USA: The newspaper “The Economist” suspects that there will be more mergers of small and medium-sized banks in the USA, as many banks are in crisis. When it comes to mergers, it’s about making the banks appear safer for customers, says Korte. “This may actually help some banks, but the question is whether they really want to go together,” says the expert. He considers it unlikely that many banks would agree to a merger because they do not know exactly how the partner bank is doing and how high the risk is.
Stricter rules for financial institutions in the US: Expert Korte sees this pragmatically. He says: “Whenever there is a banking crisis, there are calls for the regulations to be tightened. However, the rules cannot be strict enough to prevent all financial crises.” Crises arise where you do not expect them. Of course, tightening will be discussed and some provisions will certainly be changed. But he does not expect that this will be able to prevent a new crisis.