The United States fears new collapses after First Republic went bankrupt and was acquired by JPMorgan, the US financial giant, on Monday, repeating the bankruptcy scene in the Egyptian-American sector for the third time since March.

According to a report published by the French newspaper "Le Monde", after the bankruptcy of the Silicon Valley Bank, at the beginning of March, and then the bankruptcy of the "Signature" bank, it was the turn of a third major financial company, which also failed over the weekend, the "First Republic" bank.

First Republic was placed under the tutelage of the Federal Deposit Insurance Company, the federal body responsible for guaranteeing bank deposits, and was immediately taken over by the largest U.S. bank, JPMorgan, with JPMorgan's shares immediately rising 2.5%.

In this situation, the Federal Deposit Insurance Company would lose about $13 billion (11.8 billion euros) in this case, but that loss could be reduced by an acquisition by JPMorgan, which will pay $10.6 billion.

No one applied to buy the bankrupt bank for several weeks, forcing the federal body to intervene, leaving none of First Republic's shareholder shareholders, which stood at nearly 50 billion euros in February, remained.

The crisis accelerated at the end of April, when First Republic revealed during its quarterly results presentation that its customers withdrew more than $100 billion in deposits in March, leaving only $75 billion in its coffers, at which point the elements of bankruptcy began to emerge, despite the initial bailout led by major local banks, led by JPMorgan, by lending the institution about $30 billion as of mid-March.

JPMorgan acquires First Republic Bank (Reuters)

Main reasons

The French newspaper report believes that the current banking crisis can be explained by 3 phenomena:

  • The US Federal Reserve's interest rate hikes, which increased the cost of short-term loans from zero to 5% in one year, a policy that led to assets falling to 15% of bank bond portfolios. When interest rates rise and bond prices fall to adjust and offer the same return as the market with an increase in their costs, depositors demand higher interest rates, causing huge losses.
  • These losses rose due to mistakes made by poorly supervised banks, as revealed by the first binding reports of the Corporate Administration and the Federal Reserve, where they put their clients' short-term deposits in long-term bonds that lost their value, and then had to liquidate their portfolios with significant losses when customers withdrew their deposits, because they needed them during the Wall Street funding crisis.
  • In the age of the Internet, it is possible to withdraw your money with two clicks on your smartphone, making it impossible to shut down banks, which is what caused the bankruptcy of Silicon Valley Bank, and to a lesser extent Signature Bank, and finally the bankruptcy of First Republic.

Founded in 1985 and employing 7200,<> people, First Republic was a Silicon Valley-like wealth management organization, and among its clients was, for example, Mark Zuckerberg, the founder of Facebook.

Are there fears of new bankruptcies?

The case raises questions about the risks of systemic crises: There are $213 billion in assets for First Republic, $209 billion for Silicon Valley Bank and $110 billion for Signature.

Then there are other bankrupt institutions since March worth $532 billion, which is more than the 25 deposit banks combined, which failed in 2008, according to the New York Times, but in reality that figure is even greater, because it does not include investment banks, notably Bear Stearns and Lehman Brothers, which flooded the financial world in 2008.

However, everyone is wondering if a new wave of collapses is about to come, while Charlie Munger, partner of billionaire Warren Buffett, has warned in the Financial Times of a financial crisis in commercial real estate.

The Wall Street Journal said it seemed unlikely that First Republic's bankruptcy would lead to a new confidence crisis, with regional banks losing deposits evenly in the first quarter but the declines were modest compared to $100 billion in First Republic withdrawals.

The case was deemed serious enough to allow JPMorgan to intervene, even though the law prohibits a single institution from holding more than 10 percent of deposits in the United States, and the bank now has a whopping $3.2 trillion in powerful assets.

This would crush the US market, followed by three other giant banks: Bank of America ($3.2 trillion in assets), Citibank ($42.1 trillion), and Wells Fargo ($77.1 trillion).

The U.S. practice, guided by authorities, is for taxpayers or banks to bail out all failing institutions and guarantee all deposits, even beyond the theoretical ceiling of $250,<>.

But in 2008, that system collapsed when no one — neither Wall Street nor politicians — was ready to bail out Lehman Brothers.