Listen to the audio version of the article
The crisis of US regional banks does not stop. Just over a year after the collapse of Silicon Valley Bank, another emergency bailout was triggered this weekend to avoid the default of Republic First Bancorp. The bank, based in Philadelphia, is much smaller than SVB: it has total assets of $6 billion and customer deposits of $4 billion from 32 branches located in New Jersey, Pennsylvania and New York.
To avoid default, the Federal Deposit Insurance Corporate (FDIC) secured the bank by arranging for the sale of the assets to Fulton Bank and taking on the losses which, according to initial indications, amount to 667 million dollars. After the “flash seizure” by the Authority, from Monday the branches of Republic First Bancorp will reopen to the public as part of Fulton Bank.
The issue of mortgages and rates
What caused the crisis of the Philadelphia institution was the excessive imbalance of the assets towards exposure to real estate mortgages, in particular that of the commercial sector which in the USA has been in crisis for a couple of years. As with other US regional banks, the steep and ongoing rise in interest rates also had a bearing, making it more difficult to protect direct deposits from customers.
It was not possible to cope with the decline in deposits with a reduction in loans, since the sale of old mortgages (or government bonds) granted in the decade of zero rates would have generated capital losses that would have forced difficult recapitalizations. A film already seen last year with SVB and then with Signature Bank and in May 2023 with First Republic (the latter saved by JP Morgan).
First rescue of 2024
The emergency bailout of Republic First Bancorp is the first of 2024 after last March 11th the Federal Reserve decreed the end of the Bank Term Funding Program (BTFP), the extraordinary plan to provide emergency liquidity to banks in crisis which was was launched urgently a year ago following the collapse of SVB. The Fed’s decision to end the BTFP was interpreted by investors as a signal that the phase of difficulty for regional banks was over. Not so, as the weekend emergency bailout of Republic First Bancorp shows. A small bank which however raises a theme of alarm for the US regional banking system.