China News Network, April 4 -- According to comprehensive foreign media reports, the Silicon Valley banking turmoil has not yet passed, and a new round of US small and medium-sized banking crisis seems to be brewing again. On the 29th local time, the shares of First Republic Bank fell sharply, and the outside world became increasingly little hope of reaching a rescue agreement to maintain the bank's survival.

At the same time, the Federal Reserve issued a report on the 28th, calling for strengthening supervision of the banking industry and admitting that the previous supervision of Silicon Valley banks was insufficient.

The stock price plummeted again

First, the republican banking crisis continues to ferment

According to the US Consumer News and Business Channel (CNBC), in the trading on the 28th, the stock price of First Republic Bank fell by more than 50% intraday, falling as low as $2.98 per share, and suspended trading due to volatility many times. Since 2023, the bank's share price has fallen by 97%.

Sources said the most likely outcome for the troubled bank was taken over by the Federal Deposit Insurance Corporation (FDIC). If the FDIC takes over First Republic Bank, the FDIC asks if other banks are likely to bid for the bank.

A pedestrian walks past a First Republic Bank branch in San Francisco on April 2023, 4.

CNBC reported on the 26th that advisers to First Republic Bank are preparing to sell a plan to large banks to let banks in the region sell bonds and other assets at above-market prices, and then raise equity. The sale will result in losses for the banks that buy the bonds, but it may be less costly in the long run than for the banks to fail and be taken over by regulators.

The shares of First Republic Bank released its first quarter results report on the 24th, which showed that deposits fell by about 40%. First Republic Bank's share price then fell nearly 50 percent, hitting a record low.

First Republic Bank is a regional bank focused on high-net-worth individuals and their businesses, including providing low-interest mortgages to these customers.

Since the Fed began raising rates in 2022, the market value of these mortgages, along with other long-term assets on banks' balance sheets, has fallen, leaving investors worried that banks will have to bear considerable losses to raise cash if forced to sell these assets.

The bank's massive deposit outflows followed the collapse of Silicon Valley Bank and Signature Bank in March. Since then, the largest U.S. banks, including JPMorgan Chase, have pumped $3 billion in time deposits into it in an attempt to inject confidence and prevent a bank run from spreading, but First Republic Bank has still lost significant amounts of deposits.

The Fed acknowledges inadequate regulation of Silicon Valley banks

Call for greater banking supervision

According to Agence France-Presse, on the 28th local time, the Federal Reserve issued a report calling for stronger supervision of the banking industry and admitting that the previous supervision of Silicon Valley banks was insufficient.

According to reports, Michael Barr, the vice chairman of the Federal Reserve in charge of regulatory business, said in a report that day, "After the failure of Silicon Valley Bank, we must strengthen the supervision and management of the Fed based on what we know." ”

Barr noted that Silicon Valley Bank management failed to adequately manage risk before the bank's failure, and that Fed supervisors did not take strong enough action after identifying problems with Silicon Valley Bank, acknowledging that the Fed "did not recognize the seriousness of key deficiencies in governance, liquidity and interest rate risk management at Silicon Valley Bank." ”

Barr said the Fed will look into strengthening banking oversight to ensure that risks and loopholes can be identified more quickly in the future.

On March 2023, 3, the Federal Deposit Insurance Corporation (FDIC) said that Silicon Valley Bank had been closed by California regulators due to insolvency, and the company took over. Photo by Liu Guanguan

In addition, the Fed will seek to strengthen the regulatory framework for banks and consider strengthening rules around interest rate risk, liquidity and capital requirements, and stress tests.

Fed Chairman Jerome Powell welcomed Barr's "self-critical report" and said, "I agree with and support his proposals to address our rules and regulatory practices and believe they will make the banking system stronger and more resilient." ”

The collapse of Silicon Valley Bank on March 3 was the largest bank failure in the United States since the 10 financial crisis. On March 2008, the U.S. government announced the closure of the signature bank. Two banks failed in 3 days, causing the US banking crisis to continue to spread. The U.S. Treasury secretary has warned that further contagion could lead to the collapse of many banks and trigger a run.