Another bank bankruptcy The irresponsible monetary policy of the United States has rebrewed the crisis

□ Wang together

Recently, U.S. financial authorities confiscated California's troubled First Republic Bank and sold it to JPMorgan Chase in hopes of ending a two-month banking crisis that shocked the financial system. First Republic Bank became the third U.S. bank to fail within two months. Earlier, the US Federal Reserve (Fed) and the US Federal Savings Insurance Corporation (Fed) separately released investigation reports on the bankruptcy of two previous banks, which revealed that regional banking crises have long been cursed.

The third bank failed

The California State Bureau of Financial Protection and Innovation announced on May 5 the closure of First Republic Bank, which was taken over by the Federal Savings Insurance Corporation, the banking regulator. In order to find a buyer to take over the bankruptcy bank's assets, the latter urgently organized a bidding at the end of April and announced its decision to acquire all of the savings deposits and remaining assets of First Republic Bank by JPMorgan Chase Bank, registered in Columbus, Ohio, just before the opening of the US stock market on May 1.

As concerns about the stability of the U.S. banking sector spread and depositors panic withdrawals, First Republic Bank was also affected by this run. According to the first quarter of 2023 financial report, First Republic depositors withdrew more than $1000 billion in deposits that quarter, and their stock prices plummeted. In mid-March, S&P Global Ratings further downgraded First Republic's credit rating to "junk status."

It is reported that as of April 4, the market value of First Republic Bank fell to a record low of US$28 million, less than one-seventieth of the peak of US$5 billion in November 57.

First Republic Bank is the third US regional bank to be closed and taken over due to the rupture of the capital chain in the past two months, after Silicon Valley Bank and Signature Bank. According to the Federal Reserve Board, as of the end of last year, the asset size of the First Republic Bank ranked 14th among US commercial banks, while Silicon Valley Bank and Signature Bank ranked 16th and 29th respectively.

According to foreign media reports, the total assets of First Republic Bank at the end of March were $3 billion. Excluding investment banks such as Lehman Brothers, First Republic Bank would be the second-largest bankruptcy in U.S. history after the Reciprocal bankruptcy in Washington in 2330.

According to the Wall Street Journal, the Federal Savings Insurance Corporation announced on the morning of May 5, local time, that JPMorgan Chase will take over a total of $1.1039 billion in deposits of First Republic Bank and acquire most of its $2291.<> billion assets.

As part of the deal, the Fed will share losses on First Republic Bank loans with JPMorgan, a deal estimated to cost the Federal Savings Insurance Club's deposit insurance fund $130 billion.

A Treasury spokesman said it was good to see First Republic Bank solve the problem with minimal expense to the savings insurance fund and protection for all depositors. The ministry believes that the U.S. banking system remains sound and resilient.

The report reveals that regulation is unfavorable

As the two major commercial banking regulators in the United States, the Federal Savings Insurance Corporation and the Federal Reserve Board respectively released investigation reports on April 4, revealing that the regional banking crisis has long been bane: in addition to the bank's own poor management, there are several deep-seated reasons, including the United States in recent years in the legislative relaxation of supervision of small and medium-sized banks, loose monetary policy has led to excessive expansion of bank assets and accumulated risks, and regulatory agencies have insufficient manpower to verify it.

In the United States, many savers are still worried that the shock will affect the safety of their personal deposits. Previously, in an effort to stabilize the market and prevent a bigger run, the Federal Savings Insurance Corporation additionally pledged to guarantee all depositors' deposits at Silicon Valley Bank and Signature Bank, exceeding the official standard of no more than $25,<> per bank per account of the same category.

The Federal Savings Insurance Corporation provides insurance to U.S. banks and is responsible for increasing and maintaining public confidence in U.S. financial institutions, and its main responsibilities include regularly verifying thousands of commercial savings banks in the United States that are not part of the Federal Reserve System to confirm that their operations are in compliance with regulations, liquidating bankrupt bank assets, and so on.

Michael Barr, the Fed's vice chairman for financial regulation, said in the report that the Silicon Valley bank was closed due to "textbook" mismanagement, with bank management failing to manage interest rate and liquidity risks, the board failing to supervise and hold management accountable, and Fed supervisors failing to act forcefully enough.

Barr pointed out that the regulatory standards for Silicon Valley banks are too low, supervision is weak, and the Fed has not considered the systemic consequences of the Silicon Valley bank shutdown.

The report pointed out that the Fed has deregulated small and medium-sized banks under relevant laws passed and implemented under former President Trump, and proposed to strengthen the regulatory framework, but these measures may take several years to complete.

To avoid a repeat of the 2008 financial crisis, the United States passed the Dodd-Frank Act, a financial regulatory reform law, in 2010. However, due to partisan interests and lobbying by small and medium-sized banks, new legislation in 2018 relaxed the regulatory requirements for small and medium-sized banks.

The Fed report also noted that Silicon Valley bank assets grew rapidly from $2019 billion in 710 to $2021 billion in 2110, benefiting from the rapid increase in venture capital and technology sector deposits brought about by abnormally low interest rates.

The report shows that the assets of Silicon Valley Bank and Signature Bank have expanded rapidly in recent years. With interest rates moving higher in 2022, the two banks suffered deposit outflows.

These two banks expanded rapidly and accumulated risks during the extremely loose monetary policy in the United States, and the Fed's rapid tightening of monetary policy led to risk exposures and losses, and eventually collapsed in this irresponsible monetary policy adjustment.

The Fed raises interest rates again

On May 5, local time, the Fed announced a 3 basis point rate hike, that is, an increase of 25.0%. Since March last year, the Fed ended the era of zero interest rates for four years, opened the channel of interest rate hikes, and continuously raised interest rates for more than a year, after this rate hike, the US federal funds rate increased to a range of 25% to 3.5%, the highest since 5.

Public opinion believes that continuing aggressive interest rate hikes may add fuel to the fire of the crisis-ridden US banking industry, bringing the United States one step closer to recession.

Previously, industry insiders generally expected the Fed to raise interest rates for the tenth consecutive time, and this is likely to be the last rate hike "pawn" under this round of Fed tightening cycle.

"This can be a particularly critical meeting." Thiani Swalk, chief economist at KPMG, said: "In this marathon, we are approaching the Fed's toughest last mile – and the backlash against raising interest rates will intensify in a way that no one at the Fed has ever experienced. ”

The Fed has been raising its policy rate since March 2022, raising the federal funds rate from near zero to a range of 3.4% to 75% in just one year.

Data recently released by the US Department of Commerce show that US inflation indicators are accelerating. The personal consumption expenditure price index rose 4.2 percent in the first quarter, beating expectations by 3.7 percent and the biggest increase in a year.

Analysts pointed out that the Fed's choice to continue to raise interest rates will have a negative impact on the world economy. First, the Fed's continued interest rate hikes will definitely curb the economy, whether it is investment consumption or import and export. The U.S. economy is likely to continue to decline, and the pressure will be even greater. Second, the crisis in the US banking sector is likely to continue, further triggering systemic risks. Third, for countries with low foreign exchange reserves, high foreign debt, and a single industrial structure, the Fed's interest rate hike may lead to bankruptcy in these countries.

Public opinion believes that what is currently facing the US government and regulators is a paradox, that is, continuing to raise interest rates may aggravate the liquidity crisis of banks, and suspending interest rate hikes cannot effectively curb inflation.

Some experts predict that the US economy is likely to fall into recession in the middle of this year.

The New York Times noted that the Fed uses euphemisms like "soft landing" or "hard landing" to sidestep recession issues. In fact, the probability of a slowdown in the US economy within a year is quite high, and the "soft landing" expected by the Fed is difficult to achieve.